This case study is an anonymised composite based on publicly reported PI claim patterns. It is not actual Apex client data and does not constitute legal or insurance advice. Names, locations and identifying details have been changed. Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority, FRN 724952.
A three-adviser IFA practice in a midlands market town, regulatory revenue around £950,000. Predominantly mass-affluent retirement and ISA-stage clients. The firm distributed a modest book of structured investment plans over the 2014–2017 period, mainly to clients seeking “capital-at-risk-but-conservative” propositions with a defined payoff profile.
The client was a retired 71-year-old former NHS administrator with a portfolio of approximately £180,000 across ISAs, a SIPP in drawdown, and modest cash savings. Her income was provided largely by a small NHS pension and the state pension; the investment portfolio was intended to provide a modest income top-up and to be a legacy for her two adult children. She was risk-averse with limited investment experience.
The firm recommended a tranche of approximately £45,000 into a structured product offered by a specialist provider. The product was a six-year FTSE-linked structured plan with a defined return at maturity if the index met certain conditions and a capital-at-risk element triggered if the index fell below a barrier at maturity. The product was issued by a banking counterparty and distributed through the plan manager.
The advice letter described the product accurately at a technical level. It identified the capital-at-risk feature and noted that returns were not guaranteed. The presentation of the risk was, however, modest in proportion to the presentation of the potential return; the central tone of the letter was that this was a “cautious growth” allocation, and the practical implication of the capital-at-risk barrier was understated.
The product matured outside the conditions for the defined return; the index had fallen below the barrier and the client received back significantly less than her invested capital. The actual loss on the tranche was approximately £24,000.
The client complained, citing reliance on the firm’s characterisation of the product as cautious.
The complaint went to FOS. The FOS analysed the suitability of the advice under COBS 9 and applied the line of FOS decisions on structured product mis-selling — a line of decisions that has consistently held that the suitability of a structured product depends on the client’s circumstances, attitude to risk, and capacity for loss, and that the technical accuracy of the product literature does not displace the firm’s separate duty to ensure the recommendation is suitable.
The FOS upheld the complaint. The firm’s argument that the disclosure was technically accurate was treated, correctly, as collateral to the suitability question. The redress assessment compared the actual outcome with what would have happened had the same money been invested in a portfolio appropriate to the client’s risk profile. Redress was approximately £19,000.
A separate parallel question arose: the firm had recommended the same structured product to a small number of other cautious retired clients. Whether those recommendations had been suitable, on similar facts, was the subject of a past-business review the firm commissioned promptly on receipt of the first FOS complaint. A further four cases were identified as requiring redress.
Section 5 notification was made on receipt of the first FOS complaint. The wording responded subject to the firm’s £10,000 each-and-every excess.
A point arose on the aggregation language. The wording defined a “claim” as “all losses arising from a single act, error or omission or series of related acts, errors or omissions having a common cause”. The insurer’s coverage view was that the structured-product cohort sat within a single series — common product, common client-suitability template, common adviser approach. This worked, on the facts, in the firm’s favour for excess purposes: a single £10,000 excess applied across the cohort rather than five separate excesses. The £2m limit was untroubled by the modest combined quantum.
A subtler point: the wording contained an exclusion for losses arising from the “insolvency of any product provider or counterparty”. The structured product’s banking counterparty had not become insolvent; the product had simply paid less than the central case at maturity. The exclusion was not engaged. But on a similar fact-pattern with a counterparty failure, the exclusion would have been a material issue and would have changed the response of the cover — a point that is worth understanding at renewal rather than at claim.
The combined exposure across the cohort came to approximately £88,000 plus FOS-related complaint-handling costs.
The redress was paid. The firm ceased to recommend structured products and now uses a more conservative range of cautious-growth solutions for its retired client base. The firm’s PI premium rose by approximately 28% at renewal, partly absorbed by good engagement on the firm’s revised CIP (centralised investment proposition) framework and the documented past-business review.
The FOS upheld decisions were published in anonymised form; the published reasoning is consistent with the broader FOS pattern on this product type and the firm’s claims experience tracked the published pattern closely.
Structured products produce a distinctive claims pattern. First, technical accuracy of product literature does not authorise unsuitable recommendation. The firm’s suitability duty is separate from and senior to the literature provided by the product provider. Second, the FOS published decisions on structured products are a reliable predictor of how complaints will be analysed; firms with a meaningful structured product book should benchmark their files against the pattern. Third, counterparty risk on structured products is a real and live consideration; the PI wording typically excludes loss arising from counterparty insolvency, and that exclusion should be understood before the firm takes on this kind of distribution. Fourth, where a structured product cohort exists, a proactive past-business review is materially less costly than reactive complaint handling. Fifth, capacity for loss assessments for retired clients should be approached with the heightened care that age and dependency on the portfolio for income require.
The firm’s PI wording on structured products requires careful analysis at renewal — the counterparty-insolvency exclusion is the single most common point we identify on policy review, and the aggregation language has direct consequences on excess exposure. On notification, framing a single series notification correctly produces a much better excess outcome than multiple separate claims. At renewal, the firm’s revised CIP and the structured product run-off position are explained best by a broker who understands the technical product landscape; this is where specialist broking earns its fee.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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