A Guide: Investment

Protect Yourself

There are a number of simple "rules" that you can follow that will help you to protect yourself.

  1. Never send money to purchase an investment based simply on a telephone conversation.
  2. Never make cheques payable to a representative of a firm.
  3. Paying by cash can be dangerous - avoid it if you can and use cheques (or bank drafts) instead. It is safer.
  4. Always ask for an official receipt.
  5. Never send cheques to an address different from the business address of the product provider or investment services firm listed in a prospectus or terms of business letter/investment agreement.
  6. Before signing a long term contract, make sure that you are fully aware of what might happen to your investment in case your plans change. You should be aware of any penalties for early termination, which may be significant.
  7. Never allow your contract notes or your statements to be delivered or mailed to your investment services firm as a substitute for receiving them yourself, unless you have specifically indicated a preference for this and requested it. These documents are your record of the value of your investment and what exactly your monies are invested in. Verify that the information in these statements is correct to the best of your knowledge (e.g. the type of investment bought is recorded properly).

Be Aware Of....

  1. Representations of spectacular profit, such as "Your money will double in six months". Be suspicious of anyone who tells you "Invest quickly or you will miss out on a once in a lifetime opportunity".
  2. Remember, if it sounds too good to be true, it probably is!
  3. "Guarantees" that you will not lose money on a particular investment.
  4. An excessive number of transactions in your investment account. Such activity may generate additional commissions for your investment services firm, but may provide no better investment opportunities for you.
  5. Recommendations to make a dramatic change in your investment strategy, such as moving from low risk investments to speculative securities, or concentrating your investments exclusively in a single product.
  6. Switching your investment in a collective particular product, for example an policy or fund to another, with the same or similar investment objectives. Unless there is a legitimate investment purpose, a switch may simply be an attempt to generate additional commission for the investment services firm.
  7. Pressure to trade your investment account in a manner that is inconsistent with your investment goals and the risks you want or can afford to take.
  8. Assurances from your investment services firm that an error in your contract note or statement is due solely to computer or clerical error. Insist that the investment services firm or compliance officer promptly sends you a written confirmation that the matter has been corrected. Verify that the problem has been corrected on your next statement.

Do I need to be suspicious?

We hope that you are always approached by companies or persons representing companies who are authorised by the FSC. But one can certainly not exclude that persons, who pose as being authorised but who are not, may approach you.

If you have been contacted by a firm or individual even though you did not ask for a visit or a telephone call, be especially careful. Ask yourself: why is this person contacting me? What makes him think that I might be interested in what he is offering? From where did he get my name, address and telephone number? How has he determined that the product or service is suitable for me? What does he know about my plans and needs for the present and the future? What does he know about my attitude to risk?

Take care to find out all you can about the person who contacted you. Who is he representing? What kind of business name does he have? Be particularly cautious if you do not recognise the name and it sounds grandiose. Words like "Bank" and "Insurance" are subject to control when used in business names. If you see such words you should also normally expect to find words like "Licensed by" or "Authorised by" and then the name of a regulator. If you do not see such words, ask why not. Sometimes you may find names of companies which include the words "trust", "investment", "financial". If these companies are not authorised by the FSC, or foreign financial services regulator, they cannot provide investment services.

If you are given a business card personally, consider the person who gave it to you. Find out how long he has been with the company. Does he own the company (if it is not a name you recognise) or is he employed by the company? How long has the company been in existence? What is his role? Where is the company based? The further away it is from you the harder it may be to get something put right if it goes wrong. If the company is part of an international group of repute, there may be no problem. If it is not, be careful. Is it a real business address? Do people actually work there? Or is it just a post office box?

Remember that a stranger who calls and asks for your money is to be regarded with the utmost caution. If he calls you, you are under absolutely no obligation to stay on the telephone with a stranger. In these circumstances, it is not impolite to explain that you are not interested and hang up the phone. It is also not impolite to request the caller not to call again.

What exactly is he offering you? If you do not understand, do not buy it, do not accept it, do not sign up for it, and do not commit yourself in any way. Say "no" to anyone who presses you to make an immediate decision.

Are you quite sure where your money is going into? Are you sure what is going to happen to your money? Is it a deposit, an insurance product, a share? Ask: How do I get my money back? When can I get my money back? Do I lose any money if I want it back soon? Or in a hurry? Who pays me my money back? If I have to sell investment (a share or bond), who will buy it? Is it marketable (lots of buyers) or are there only one or two?

You need to consider what kind of return the product is offering. Is it income or capital growth? Is it what you need and want? What about the risk of loss? What about your tax position? How is growth measured? Who measures it? Are there published prices or values by which you can see what it is worth? If so, who publishes them and where are they published?

You may also find it useful to refer to the FSC's guidance on how to avoid fraud and scams and guidance on phishing.

http://www.gfsc.gi/consumer/fraud

http://www.gfsc.gi/consumer/phishing

Do I have a complaint?

Sometimes you may not be happy with a product or service. This may not be anyone's fault but simply because of the nature of the product you have invested in. For example, you might be investing regularly to build up a target sum and the investment might not grow as fast as you had hoped. If the final value fails to meet your target, you may feel disappointed. The fact that investments grow at unpredictable rates, and can fall as well as rise in value, is not usually a valid reason for a complaint.

In some cases though, a financial product or service turns out badly because the firm you dealt with did something wrong, for example they may have recommended the wrong type of product, they may not have properly followed your instructions to buy or sell a particular share, or they may not have kept within the parameters of the discretionary investment mandate that you had given.

If you have a complaint against a firm you should follow the process explained in this link.

 

How should I word my complaint to the investment services firm?

You can phone an investment services firm to make a complaint but make sure you note the name of the person you speak to and the date and time you call. Keep this in a safe place - it is a record of your complaint.

Following your phone call with a letter is important. Your letter needs to be clear, simple and to include essential information. You are less likely to get a good result if your letter is sarcastic or abusive.

Here are some points which you could follow:

  • Do not worry about grammatical errors - express yourself to the best of your abilities.
  • Write "Complaint" at the top of your letter.
  • If possible, type the letter or write clearly in black or blue ink - in case it needs to be photocopied.
  • Include any reference numbers, for example, for the product you bought, the account you hold, or a customer reference.
  • State your case clearly, including relevant dates. Put down the dates in a sensible order. Avoid unnecessary detail and repetition. Be firm but remain polite.
  • Send copies of documents (if these are relevant) but always hold on to the original documents.
  • Every time you write, keep a copy of your own letter for reference.

What happens if I am still not satisfied with the way my complaint has been handled by the investment services firm?

If you are still not satisfied and you feel that you have exhausted all possible ways to resolve your complaint, and believe you have a case for being compensated financially, this must be pursued through the Gibraltar courts. Anyone contemplating such action should always consider taking professional advice at an early stage. The FSC in itself has no statutory powers to undertake the role of an ombudsman in respect of complaints nor act as arbitrator in commercial disputes. Whilst the FSC does not conduct investigations on individual complaints, it is useful, however, for the FSC to be made aware of complaints against firms it supervises. The FSC's role is to ensure that a regulated firm is being managed prudently in a fit and proper manner - any interest which it takes in a complaint will therefore normally be confined to ensuring that this criterion is being met. A complaint might draw attention to more general shortcomings in a business such as inadequacy of systems and lack of expertise in its managers or directors. Should the FSC decide to take action against a firm, such action will not usually be made public, and the confidentiality provisions under the relevant legislation within which the FSC operates may preclude the FSC from making any public statement. Indeed, the FSC is not able to tell individual complainants of the nature and scale of its enquiries, or of the action it may, or may not, have taken.

Those considering lodging complaints with the FSC should always bear in mind the above limitations, but should not be deterred from informing the FSC of their concerns. It is important that any information provided by complainants is both accurate and complete.

The FSC welcomes any views and comments that may assist it in satisfying its supervisory responsibilities. In addition, it is grateful for any information about people or firms who appear to be carrying on financial services business in, or from within, Gibraltar without the necessary authorisation.

The Office of Fair Trading (OFT) of the Government of Gibraltar (consumer.protection@gibraltar.gov.gi) is able to provide assistance to individuals who wish to complain about services or goods provided by any firm in Gibraltar.

The Gibraltar Investor Compensation Scheme (GICS)

Certain investment services firms are required to become participants of the GICS. These are firms that are authorised under the Financial Services Act 1998. The scheme therefore only applies to certain investment services firms authorised to provide certain investment services. Insurance intermediaries providing financial advice are not currently covered by the scheme.

GICS provides protection to investors in case of fraud, breach of rules or other circumstances leading to the inability of an investment services firm to repay money and return financial instruments to investors.

The scheme is established to provide cover to investors' claims when an investment services firm is unable to meet its obligations, and thus protect primarily small investors and maintain confidence in the financial system.

The scheme is activated upon the occurrence of one of the criteria prescribed in the GICS legislation. This ranges from the Financial Services Commissioner taking the view that, for reasons directly related to its financial circumstances the participant appears unable to meet obligations to investors to the winding-up of a firm incorporated in Gibraltar. The most likely of these events is a Court's decision to put the firm into liquidation.

GICS covers up to a maximum of €20,000 for any one individual, although compensation varies according to the investments held by the investor issuing the claim.

Eligible investments under GICS;

The Scheme only covers eligible investments. Eligible investments are defined as follows:

  • Transferable securities
  • Units in collective investment undertakings
  • Money market instruments
  • Financial-futures contracts (including equivalent cash-settled instruments)
  • Forward interest-rate agreements (FRAs)
  • Interest-rate swaps
  • Currency swaps
  • Equity swaps
  • Options to acquire or dispose of any of the above instruments (including equivalent cash-settled instruments) e.g. currency options and interest-rate options.

The following investments therefore are amongst those not covered by the scheme:

  • Investment instruments falling outside the definition in the Investment Services Directive;
  • Life assurance products;
  • Pension products;
  • Investments arising out of transactions in connection with which there has been a conviction under the anti money-laundering legislation;
  • Investments eligible for compensation under the Deposit Guarantee Scheme Act 1997;

For further information on GICS visit its website www.gics.gi