Mis-sold investments and bad investment advice

Investment advice goes wrong in two main ways: an adviser recommends something that was never suitable for your circumstances, or a firm misleads you about what a product does. The Financial Ombudsman Service says it can look at complaints where you were "advised to make an investment that wasn't right for you, or misled or misinformed about an investment product"¹. If it agrees the advice was wrong, it tells the firm to put things right, which usually means restoring the money you lost, with interest, and sometimes extra compensation for distress². For complaints referred on or after 1 April 2026 about acts or omissions on or after 1 April 2019, the ombudsman's award limit is £455,000³.

The process is free. You complain to the firm first, give it up to eight weeks to respond, and only then take the matter to the ombudsman. If the adviser has gone out of business, a separate body, the Financial Services Compensation Scheme (FSCS), can pay compensation for bad or misleading investment advice instead.

What counts as a mis-sold investment or unsuitable advice

A mis-sold investment is one you would not have bought, or would have bought differently, had the firm treated you fairly. The ombudsman groups the investment complaints it sees into a few familiar patterns: being advised into an investment that was not right for you, being misled or misinformed about a product, losing money through administrative errors, or being overcharged¹. The same applies to savings and endowment plans, where the question is whether the advice, or the way the plan was sold, was suitable for what you wanted².

With investment products, mis-selling complaints typically rest on not having been given the correct information, or not having been told how the money would be invested or the risk involved¹. Similar principles reach into pensions. In one example the ombudsman cites, unsuitable advice meant a person was invested in their employer's money purchase AVC or a free-standing AVC instead of buying added years in a final salary scheme, when the added years would have suited them better⁸. Advice about a repayment plan counts too: for interest-only mortgages, the ombudsman decides whether you received advice and, if so, whether it was suitable, including advice on how the loan would be repaid⁹.

One boundary matters at the outset. An "execution-only" sale, where you bought a plan without receiving advice and understood that this was what you were doing, is unlikely to be upheld as a mis-sale². The distinction between advised and non-advised sales is one the ombudsman draws across products: an advised sale is where the business either recommends a product or expresses an opinion that leads you to buy it, while a non-advised, or "informed choice", sale leaves the decision with you¹⁰. If you were given no advice at all, the question becomes whether the firm misled you about the product rather than whether its recommendation was suitable.

How the ombudsman judges whether advice was suitable

The test the ombudsman applies is not whether the investment performed well in hindsight. For pension advice, it asks whether the arrangement was suitable for your circumstances and financial goals, and whether the investments were a good fit for your attitude to risk and your ability to afford risk¹¹. Where the investments were unsuitable and your pension pot is smaller as a result, the ombudsman says it will usually tell the independent financial adviser, pensions adviser or provider "to make up the difference"¹¹.

The ombudsman's starting point is whether advice was given at all. For complaints about the sale of an interest-only mortgage, it decides whether you received advice and, if so, whether it was suitable, including any advice about a repayment plan⁹. For complaints about pensions advice, including mis-selling, the test it applies is whether the pension arrangement was suitable for your circumstances and financial goals, and whether the investments in the pension were a good fit for your attitude to risk and ability to afford risk⁸.

Its approach to mis-sale complaints across products shows the kinds of evidence that sway a decision:

• Pressure: if there is evidence you were pressured into taking out a product, the ombudsman usually decides it was mis-sold¹⁰.
• Hidden exclusions: where a business did not point out exclusions relevant to you before you took out a policy, it usually finds the policy was mis-sold¹⁰.
• Costs not explained: if the total cost of a single-premium policy was not brought to your attention beforehand, the ombudsman may conclude it was mis-sold¹⁰.
• Opt-out selling: where a form asked you to deselect a product by ticking a box if you did not want it, the ombudsman is likely to conclude it was mis-sold, because doing nothing should not mean buying¹⁰.
• Eligibility: where you did not meet the eligibility criteria at the time of sale, the ombudsman will usually conclude the policy was mis-sold¹⁰.

Not every complaint succeeds. Where a consumer was not aware of an existing medical condition when they took out a policy, the ombudsman will usually conclude the policy was not mis-sold¹⁰. And where a consumer says they are concerned they may have been mis-sold a policy in connection with a credit agreement but cannot recall the details of the transaction, the ombudsman has to establish what was actually sold before it can judge how¹². The lesson for a complainant is that evidence carries the case: what you were told, what was written down, and what your circumstances were at the time.

Complain to the firm first: the eight-week deadline

The ombudsman does not take a complaint until the firm has had a chance to resolve it. Its guidance is consistent across products: the first step is to complain to the company involved, and "if they don't send you a final response letter within eight weeks, or you're unhappy with their response, you can bring the complaint to us"¹³. Businesses themselves are told to reply to a customer within eight weeks¹⁴, and the same eight-week rule appears in government complaint procedures, which provide for referral to the ombudsman if more than eight weeks have passed without a final response or the complainant remains dissatisfied¹⁵.

A complaint does not need a particular form, but it does need to be directed at the right business. Where a firm referred you to another business, the ombudsman says the complaint should be directed against the firm that referred you, and that firm must give you its final response within eight weeks⁴. A complaint of this kind typically sets out what was advised, when, what was said, why it is believed to have been unsuitable, and what it has cost, with copies kept of everything sent and received.

Taking your complaint to the Financial Ombudsman Service

Once the firm has responded, or eight weeks have passed, the complaint can be referred to the ombudsman. It takes complaints through its complaint form, and its guidance notes that anyone considering using AI to help complete the form should read its guidelines on using AI before starting⁵. The service is free and easy to use⁵.

The ombudsman's investment jurisdiction is broad. Beyond unsuitable advice, it covers cases where you lost money because your adviser or investment company made an admin error or delayed a transfer or payment into an ISA account¹⁷, and Lifetime ISA complaints where wrong investments advice or misleading information led to an unsuitable investment¹⁷. Complaints about misrepresentation are also in scope¹⁴. If you were the victim of a scam and are unhappy with the response you received, you can take the matter further by referring it to the ombudsman¹⁸, and the same route applies after complaining to bodies such as Help to Buy providers in Wales¹⁹.

One split in jurisdiction matters for pension complaints. The Pensions Ombudsman states that complaints about the sale or marketing of pensions, or about financial advisers, need to go to the Financial Ombudsman Service²⁰. Scottish government guidance on mis-sold pensions says the same: you can refer your case to the Financial Ombudsman, who may be able to consider taking action on your behalf²¹.

The scale of the service gives a sense of how routine these complaints are. Between 9 July 2024 and 8 July 2025 the ombudsman recorded 4,799 investment complaints, of which 580 came from outside the UK²². Its decisions are made by an ombudsman looking at the evidence, and the outcome is final in a specific sense: "If either side is unhappy with the decision, they can't appeal an ombudsman's final decision to another ombudsman"¹⁶. The decision is binding on the firm if you accept it, but you are not obliged to.

What compensation can put right: loss, interest and distress

The aim of compensation is to put you back where you would have been had the mis-sale not happened. Where you lost money through wrong advice, the ombudsman tells the financial adviser or insurance company to put things right, and it may also tell them to pay compensation for any distress or inconvenience you have suffered². The same approach applies to capital protected structured investments: where the ombudsman thinks you lost money because you received the wrong investments advice, it tells the firm involved to put things right and may add compensation for distress or inconvenience².

Interest is normally part of the redress. Where a policy was mis-sold, the ombudsman normally tells the company responsible for the sale to refund the premiums paid, with interest²³. Its published examples show the shape of an award: in one, total compensation of £2,463.13 was made up of £1,990.90 in premiums plus £472.23²³; in another, involving a debt sold on to a third party, the total redress was £2,995, including interest of £555²³. Where a successful claim was made under a mis-sold policy, the value of that claim is usually taken away from the compensation²⁴.

Distress and inconvenience awards are typically modest but real. In one case study, a couple who complained about advice on an investment bond were paid £500 for distress and disruption²⁵. In another, where a business's delay in processing paperwork caused an annuity to start late, the loss of interest came to just over £100, but the ombudsman rounded this up to £200 to take account of the upset and distress caused²⁶. Where a mis-sold insurance policy was involved, the ombudsman may ask the insurer to refund the premium plus interest, less any tax due, or to treat you as the other business would have done had you got cover from them²⁷.

Ombudsman award limit: £455,000

The ombudsman cannot award unlimited sums. The limit depends on when the complaint was referred and when the act or omission occurred³:

The limit bites in practice. In a case study about advice given by an independent financial adviser, the ombudsman told the firm to pay the resulting compensation amount "up to the applicable maximum of £160,000"²⁸. For most investment complaints the loss falls well below the ceiling, but a large pension transfer or portfolio loss can reach it, and any amount above the limit is not recoverable through the ombudsman route.

Tax on investment compensation

Compensation interacts with tax in two ways. First, redress is sometimes adjusted for tax: where a mis-sold policy is refunded, the refund can be the premium plus interest, less any tax due²⁷. Second, the ombudsman can compensate for tax lost through a firm's mistake. Its ISA guidance states: "If we decide you paid tax on the sale of an investment that should have gone into an ISA, we'll ask the business responsible to pay you compensation"²⁹. This covers situations where an investment was sold outside its tax wrapper because of an admin error or delay, and tax was charged as a result.

The ombudsman's worked examples show tax being handled inside the arithmetic of an award rather than as a separate payment: one total of £3,836.30 was built from £3,189.97 plus £518.73 plus £127.60²³. If a complaint involves tax on redress, the decision letter sets out how the figure was calculated, and it is worth checking it against what you actually paid.

If the adviser has gone out of business: FSCS protection

The ombudsman can only order a live firm to pay. If the adviser or investment firm has failed, the FSCS steps in. It covers bad or misleading investment or pension advice, negligent management of investments, misrepresentation, and fraud, where the firm has failed⁶. The FSCS is funded by the financial services industry and is free to use³⁰, and it only covers firms that were authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) to do business in the UK³⁰.

Before anything goes wrong, the FSCS suggests asking an adviser direct questions: "Does FSCS protect financial advice? What happens if you give me bad advice and your firm fails? Are all the products you recommend FSCS protected?"³¹. It also suggests asking whether the product is covered by FSCS, how much money is protected, and what would happen to the money if the provider's business fails³¹. Its checking guidance is a two-step process: first check the provider is authorised by the FCA, then find out whether the particular activity it is carrying out for you is regulated by the PRA or the FCA³². You can also ask the firm to confirm the activity is a regulated activity and under what circumstances FSCS protection would apply if the firm failed³¹.

The scale of this protection is substantial. The National Audit Office reported that between 2010-11 and 2014-15 consumers received £898 million in compensation from the FSCS related to mis-selling by defunct firms³³. FSCS protection for investments is separate from its deposit protection: deposits at banks, building societies and credit unions are protected up to £120,000 per person, per authorised firm³⁰, but that limit is not what governs investment advice claims.

Where FSCS and ombudsman protection stops

The boundaries are worth knowing before you invest, not just after. FCA rules require risk summaries for certain investments to state plainly that "Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance"⁷. An investment that simply did badly is not a mis-sold investment, and neither the ombudsman nor the FSCS exists to refund market losses.

The same rules set out other limits:

• Unregulated firms: where the business offering an investment is not regulated by the FCA, FSCS protection only considers claims against failed regulated firms, so there is no cover⁷.
• Crypto ETNs: the FSCS does not protect UK RIE cryptoasset exchange traded notes, because they are not a type of investment the FSCS can protect⁷.
• Certain insurance lines: credit insurance, marine and aviation insurance claims are not eligible for FSCS protection³⁴.
• Unregulated arrangements: FSCS does not protect money paid under an individual voluntary arrangement arranged by insolvency partners, which are not regulated by the FCA, or debt advice³⁰.

Where an insurance claim is covered, the level varies: compulsory general insurance bought via a failed broker or financial adviser is protected at 100%, while all other general insurance is protected at 90%³⁵. The ombudsman side has its own boundary: it can only look at complaints about regulated activity by firms within its jurisdiction, and its decisions cannot be appealed to another ombudsman or to court merely because a side disagrees¹⁶.

Do you need a claims company to complain?

No. The ombudsman is free and designed for consumers to use directly⁵. Claims management companies can help you make certain types of claims against financial services providers for a fee³⁶, but the complaint process itself, the form, the evidence and the referral, is the same whether you make it yourself or a company makes it for you. A fee comes out of any compensation awarded.

The volume of mis-selling complaints shows how established the direct route is: in 2014, mis-selling accounted for 59% of customer complaints to financial services firms, some 2.7 million complaints³³. If you do use a claims company and are unhappy with it, the process is familiar: ask the company for a copy of its complaints procedure or check its website, contact it with your complaint so it has a chance to put things right, and keep a record of your complaint³⁶.