All the information communicated by an adviser to a retail investor must be accurate, clear and not misleading

The facts

Mr S solicited his adviser in February 2021 to acquire new units of an SCPI fund. The adviser therefore proposed to Mr S SCPI fund X, which would enable him to diversify his real estate assets for a payout ratio equivalent to that of the other SCPI funds in which he was already a shareholder, a ratio which appeared on an in-house document presented specifically to the client at the time of subscription.

On the basis of this information, Mr S subscribed to units of SCPI fund X.

However, after subscribing he realised that the quarterly newsletter of this SCPI indicated a lower yield for the year 2020 than that specified by the adviser.

Mr S considered that his adviser had failed in its duty to provide information and that he would not have subscribed to those units if the real performance in the past year had been disclosed to him before subscribing. This was when Mr S asked me to intervene.

The investigation

For the investigation of this case, I contacted the firm in question, to gather its observations.

At first, the firm refused to grant Mr S's request on the grounds of that it was undisputed that the latter had received the regulatory documentation which included the latest quarterly newsletter indicating the precise payout ratio of the SCPI for the financial year ended 2020.

Regarding the incorrect payout ratio indicated by the adviser to its client, the firm in question told me that this incorrect data came from internal information displayed in its professional system, and that the anomaly was subsequently corrected. The firm added that this internal information was not intended to be disseminated and that only the regulatory documentation, which showed no error, should be taken into consideration for an investment decision on an informed basis.

Recommendation

I therefore informed the investment firm of my different interpretation of the legislation.

Specifically, pursuant to paragraph 8° of Article L541-8-1 of the Monetary and Financial Code, the investment firm must "ensure that all information, including promotional communications, sent to their clients, and to potential clients in particular, must be accurate, clear and not misleading." This article makes no distinction according to the source of the information. Since Mr S was in possession of the incorrect information, even though it came from the adviser's in-house IT system, I considered that this was clearly information sent to the client within the meaning of the article mentioned above, especially since this was the main criterion for his investment.

Because the information communicated specifically by the adviser was inconsistent with that presented in the regulatory documentation relating to the SCPI fund, I could not consider that it presented content that was accurate, clear and not misleading. As a consequence, in my opinion the mode of compensation had to be based on the loss of opportunity for having been unable to subscribe on the basis of full information.

The firm in question finally agreed to go back on its position and pay compensation to Mr S, in the case of redemption of the SCPI fund units giving rise to the dispute, as I had proposed, amounting to the difference between the subscription price and the redemption value, which corresponded to two-thirds of the financial loss that Mr S considered he had incurred.

I therefore proposed a solution to Mr S on this basis, allowing him 30 days to inform me of his rejection or acceptance.

However, Mr S asked me why the proposed compensation did not cover the whole difference, and in particular the difference between the performances distributed by SCPI X and the other SCPI funds of which he was already a shareholder. To this question, I replied that apart from the fact that compensation for loss-of-opportunity damage can never be equal to 100% of the expected benefit, it appeared to me that it was necessary to allow for the fact that he had admitted to having received the Key Information Document (PRIIPs KID), the prospectus, the articles of association of the SCPI and the latest annual report and the latest quarterly newsletter, documents which did not repeat the incorrect information communicated by the adviser. For this reason, I considered that it was appropriate, in this case, to share the responsibility on a one-third/two-thirds basis. In light of these explanations, Mr S then accepted the proposed solution.

Lesson to be learned

With regard to professionals, I reiterate that the information provided to clients must be understood as a whole and that all the information sent to them must be accurate, clear and not misleading. Thus, when contradictory information is sent to the client, it is not possible to consider that it meets these conditions, even if the latest newsletters and the annual report were to contain accurate information. The provision of this documentation to the client therefore does not exempt the adviser from complying with Article L541-8-1 of the Monetary and Financial Code which lays down the requirement of clear, accurate and non-misleading content.

With regard to retail investors, I reiterate that in the event of a failing in the duty to provide information, and especially in the case of communication of incorrect information, it must be checked whether the investment firm has provided elsewhere the regulatory documentation that it was required to submit to them. If so, and in the event of contradictions between the regulatory information and that provided by the adviser, it is advisable, in my opinion, to decide on shared responsibility. I therefore draw their attention to the need to read in detail this submitted documentation.

Moreover, before making their investment decisions, retail investors should be aware that past performance is in no case a guide to future performance and that it is possible that attractive performances may not be repeated identically.