Losses with a structured real estate product recommended by the bank

A client invested USD 100,000 in 2007 in a structured product based on a global real estate fund on the recommendation of her client advisor. As a result of the financial crisis in 2008, the fund became illiquid and had to be liquidated. The client only received around 60% of her investment. She claimed that the product was not appropriate for her and that the advisor had assured her of a capital guarantee. The bank rejected the claim. It denied that the client’s advisor had guaranteed capital for the product and considered the recommendation of the product to be appropriate. The bank also invoked the statute of limitations for any potential claims for damages. Additionally, the bank referred to the positive overall performance of the client’s portfolio. After weighing the arguments of the parties, the Ombudsman considered a mediation procedure to be futile and closed the case with an explanatory notice to the client.

In 2007, on the recommendation of her then client advisor, the client invested USD 100,000 in a structured product based on a global real estate fund of the bank. The fund invested globally in commercial real estate. The investment accounted for approximately 7% of the client’s total portfolio and replaced another structured real estate product that had matured.

In the course of the international financial crisis of 2008, the underlying fund encountered significant difficulties. The secondary market for the structured product was closed. In 2009, the bank announced that it would sell the fund’s assets as part of an orderly sales program over a reasonable period of time and distribute the proceeds to investors in instalments. The client subsequently received several such instalment payments, which in total amounted to just under 60% of her original investment.

Only in 2019, around ten years after the collapse of the product, did the client contact the bank in writing for the first time and demand a full refund of her investment of USD 100,000. In further letters in 2019 and 2020, she repeated her demand. The bank consistently rejected these in three consecutive replies.

The client essentially asserted two arguments. On the one hand, the recommended product was not appropriate for her investor profile. On the other hand, she claimed that her client advisor explicitly assured her in 2007 that there was no risk, as she would receive at least her investment of USD 100,000 back at the end of the product’s term, and thus incorrectly stated that the product had a capital guarantee.

The client was of the opinion that the bank was liable for her loss due to this incorrect or incomplete advice. She therefore demanded the full reimbursement of her original investment.

The bank rejected the client’s claim in several letters. She argued that the investment only accounted for a small portion of the client’s overall portfolio and had also replaced a similar structured real estate product. The overall performance of the client’s portfolio was positive over the relevant period. The recommendation of the product was appropriate.

The bank disputed the oral assurance of a capital guarantee allegedly made by the client advisor in 2007, as claimed by the client. The bank also argued that any claims by the client were in any case time-barred, as more than ten years had passed between the allegedly incorrect advice in 2007 and the first formal complaint in 2019, without the client having taken any action to interrupt the limitation period.

The bank ultimately referred the client to the Ombudsman.

In a detailed decision, the Ombudsman explained to the client the legal requirements for the bank’s liability in the event of investment losses as well as the general rules of evidence under Swiss law. The bank could only be held liable if it could be proven that incorrect or incomplete advice had been given.

In the Ombudsman’s view, the recommendation to invest in a structured product based on a globally diversified real estate fund as part of the portfolio of a wealthy private client could not be considered fundamentally inappropriate at the time of the investment. The drastic consequences of the global financial crisis in 2008 on such a product, which had affected investors worldwide, could not have been foreseen at the time of the investment. Due to the size of the investment compared to the overall portfolio, there was also no cluster risk.

A central question in the present case was whether the client’s client advisor had actually given a verbal assurance in 2007 that she would at least get her investment back. The bank categorically disputed the statement, and the client was unable to further substantiate her claim. As the Ombudsman, in his role as a neutral intermediary, must respect the credibility of the parties and does not conduct any evidentiary proceedings, this question could not be clarified in the ombudsman proceedings. The Ombudsman, however, drew the client’s attention to the fact that it was her who derived rights from this assertion and would therefore bear the burden of proof for it under the rules of evidence of Swiss law.

The Ombudsman found that the conditions for a successful mediation were not met for these reasons, especially since the bank had categorically ruled out any concessions to the client on several occasions. The Ombudsman’s notice did not convince the client. She contacted him again a few years later. However, a renewed review of the case by the Ombudsman did not lead to a different result. The Ombudsman drew the client’s attention to the possibility of submitting the case to the competent court and recommended that she seek advice from a competent lawyer in advance.