Among the catalogue of weasel words spawned by the financial regulation industry the phrase "experienced investor" has caused its share of trouble. It is best not to be one.
Your experience can disqualify you from compensation if you accept bad advice and lose money.
Financial advisers like to claim that an "experienced investor" understands the risks inherent in the product he is selling, and will take the loss manfully on the chin if it turns to be a dud.
Yet there is no definition of an "experienced investor" or of the experience that makes you one. The lack of it has led to a string of complaints to the Financial Ombudsman who has tried to be helpful by publishing a number of his verdicts. Some are not what you might expect.
There was a couple who won £1 million on the lottery. An adviser set up an investment portfolio for them. The stock market fell. They lost money and went to the ombudsman saying they were inexperienced - they had never before had any money to invest. The adviser should have told them to leave their winnings in savings accounts.
Not so, said the ombudsman. The adviser carried out a proper review of their circumstances, explained what could go wrong and was right to conclude that they were prepared to tolerate a "low to medium" level of risk. The lucky couple's total lack of investment experience appears not to have been the issue at all. The adviser ticked all the right boxes, so that was that.
Yet these were people who had never had the chastening experience - familiar to anyone who has dabbled in the stock market - of deciding what to do when it all starts to fall apart. That was when this couple needed advice. Yet there is no sign that this adviser offered it nor, disturbingly, that the ombudsman thought he should.
Some of his other rulings are commonsensical. But the entire concept that even a genuinely " experienced investor" can be expected to take risks that would daunt a tyro is nonsense. In the recent bear market no end of investors had experiences they have not the least intention of repeating, even if they have any money left.
