Mis-Sold Investment Bonds

| Investments

Mis-sold investment bonds are, unfortunately, a fairly typical example of financial malpractice. The reasons may vary, and we will discuss them here briefly, but essentially, there are many (often hidden) fees associated with these types of bonds that you might not have been fully informed about. Or perhaps this type of investment wasn’t suited to your financial abilities or interests at the time of investment.

All of these are possible clues that you had been mis-sold an investment bond.

What are investment bonds?

Investment Bonds may be classed as a single premium “life insurance” policy as they can be paid out in the case of the investor’s death. Despite this, they should be treated as an investment like any other, even though they can be bought from life insurance companies or bank financial advisers alike.

The premium you pay for a bond is invested and generally returned to you (typically with annual interest) when the bond reaches its maturity. Though this may vary slightly depending on the type of bond.

When you decide to cash in an Investment Bond, or when it reaches its maturity, the amount of money you get back will depend on how the investment has done. This means that you may have either earned or even lost money.

What are the risks of investment bonds?

One possible reason that investment bonds are so commonly mis-sold is that financial advisers earn a lot of commission from them. While attempting to get you sold on an investment bond, they may leave out, or not emphasise some risks of investment bonds. These include management charges and surrender penalties. 

Also, it should have been made clear to you that investment bonds are primarily an investment and that the amount of money you invest does not necessarily get you a bigger return in the future.

Bonds may have a minimum investment term. This means that if you decide to withdraw your funds early, you may be penalised. This is where surrender charges come in. A “surrender charge” applies if you decide to sell or withdraw money during the “surrender period”, which is pre-set.

Management charges are what they sound like – the fees you pay for the professional management of your investments.

On top of this, depending on whether the investment fund of which the bond is a part is onshore or offshore, different taxes may also apply. The tax treatment can vary significantly based on the market location and the type of investment. Either way, you should have been fully informed of any possible taxes that might apply.

Finally, there are multiple reasons why a bond may not earn you more money in the end. If the investment performs badly, you are likely to receive less money on surrender or in case of death. 

Its interest rate may vary over time as well – if the market rate rises, the bond’s price will fall. This is called Interest Rate Risk.

Another fairly common risk of bonds, in general, is called the Default Risk. This refers to the risk of the bond’s issuer being unable to pay the contractual interest or principal on the bond, either on time or at all.

Any investment comes with risks. This is to be expected. But you should have been made aware of them.

Can I claim compensation for a mis-sold investment bond?

If you were not fully aware of the risks of investing in (investment) bonds when you made your decision or were not made aware of the tax consequences, you may have been the victim of financial mis-selling.

Also, your financial adviser should have taken into consideration several factors when recommending you put your money into investment bonds. These include:

  • If the investment is suited to your financial situation and your needs
  • If it fits into your financial plans for the future
  • If it is suited to your level of risk
  • What other investments you have made or plan on making
  • What your plans are for your pension.

How do I make a claim?

The pension experts at Return My Money can help you make your claim in just a few easy steps.

Simply fill out our no-obligation assessment and we will call you back. We operate on a no-win, no-fee basis and have your best interest in mind. Our Claims Specialists will handle your case entirely, from start to finish, and keep you informed every step of the way.

Mis-Sold Bond Claims FAQs

A mis-sold investment is an investment that was presented to an investor wrongly or not taking into account their needs and abilities, their risk aversion, financial plans for the future, and various other factors. It’s a form of financial malpractice which may be difficult to pinpoint until you’ve lost a certain amount of money from the investment.

If you were not made fully aware of the risks of investing when you made your decision or were not made aware of the tax consequences, you may have been the victim of financial mis-selling and might qualify for compensation. If your financial advisor or investment manager didn’t disclose all the information you needed to make the right decision for you and didn’t take into consideration the numerous personal factors that would influence your investment, you may also be able to stake your claim for a mis-sold investment.

Withdrawals and surrenders from investment bonds are treated as income and are taxed at your marginal tax rate. For basic rate taxpayers, and your if part of the gain from a surrender or withdrawal takes your income above the higher rate tax threshold in that tax year, taxes should be paid on that part of the gain withdrawal or surrender from an investment bond takes your income above the higher rate tax threshold for that tax year, you might have to pay tax on just that part of the gain. If you fall in the category of higher rate or additional rate taxpayers, income tax will apply. In that case, you may have to pay an additional 20 – 25% income tax. Gains made under UK bonds are not subject to capital gains tax unless they were previously acquired by a person for the purpose of investing. Persons who took the bond out or who received it as a gift are exempt from paying capital gains tax.