Hargreaves Lansdown Asset Management Limited · DRN-5910074

The complaint Mr O is the director of a limited company I’ll refer to as ‘S’. He complains Hargreaves Lansdown Asset Management Limited (‘HL’) incorrectly labelled preference shares as irredeemable, which caused a loss to S when the shares were later redeemed. What happened S purchased 55,000 preference shares in a company I’ll call ‘L’ in four tranches between October 2023 and June 2024. S purchased the shares on HL’s platform where they had been labelled as irredeemable in the stock description. The shares weren’t in fact irredeemable and in September 2024, L actioned a buyback and redeemed the shares paying £1 per share. The redemption price was less than S paid for the shares, which Mr O says caused a capital loss of approximately £1,100. Mr O complained to HL. He said he relied on the incorrect description of the shares, which influenced his decision to invest. Had the shares been irredeemable as described, S likely would’ve been able to take advantage of a buyback offer from L at a premium price at some stage. Mr O explained he had previous experience investing in preference shares, which had been bought back at approximately 20% above the par value and anticipated a similar result with the L shares. In response to Mr O’s complaint, HL: • Accepted the shares were incorrectly labelled as irredeemable on its platform, but indicated this was due to an error in how the shares were recorded on the Exchange Data International (‘EDI’) database. As a general practice, HL said it matched the names for the securities it distributed on its platform to how they were displayed on EDI, which it placed trust in to provide accurate data. • Said it carried out an investigation as soon as it became aware L intended to redeem the shares and updated its system to remove the incorrect description. • Apologised to Mr O for the error but didn’t agree it should reimburse S for the difference. HL said dividends paid during the time the shares were held, amounting to approximately £3,000, meant S was in a better position overall, so it hadn’t experienced a loss. • Acknowledged it could’ve been more attentive to the third party’s error and said it would arrange for £150 to be credited to S’s account. Mr O disagreed with HL’s response to the complaint and brought the matter to our service. He raised the following points: • He relied on the incorrect information when making the initial decision for S to purchase the shares and later buy more. • He disputed the dividends paid prior to the shares being redeemed meant S did not suffer a financial loss, as this failed to acknowledge that S likely would’ve invested

-- 1 of 9 --

differently had HL not displayed the shares as irredeemable. Had he understood the shares were redeemable, Mr O said he would’ve opted for S to invest in alternative preference shares that were in fact irredeemable, which likely would’ve paid a similar rate of dividend and potentially benefit from a buyback offer at a premium rate at some point. Or, alternatively, he could have left the money in an interest-generating bank account. • Mr O also pointed to potential loss of future gains as a result of falling interest rates, which would’ve likely increased the value of his preference shares had they been irredeemable as described. One of our investigators considered the complaint, but did not agree it should be upheld. In summary they said: • The error did not arise from any negligence or misconduct caused by HL. • The stock name description was supplied to HL by a reputable external data provider. HL relied on this information in good faith and cross-referenced it with another supplier which also incorrectly described the shares as irredeemable. • HL was not obligated to independently verify the EDI data. • They agreed with HL’s position that S had not experienced a financial loss when taking the full circumstances into account. • Without the benefit of hindsight, there’s not a reliable way to determine if S would’ve been better off financially had it been given the correct information and ultimately decided to invest differently. • HL’s goodwill gesture of £150 was in line with an amount the investigator would expect a firm to offer in the circumstances. Mr O didn’t agree with the investigator’s findings and made further submissions. In summary, he said: • The finding that HL should not reimburse the capital loss was illogical when it was not in dispute incorrect information had been provided. Mr O relied on HL to provide accurate information. • S had no contractual relationship with the third party data suppliers, so it can’t claim against them. HL, on the other hand, likely can claim against the third parties, so it’s not fair for S to lose out. • He believed the reasoning behind the finding that S had not suffered a financial loss was flawed and provided examples to demonstrate this. • He was aware of another firm that attempted to buyback irredeemable shares, which compensated shareholders without considering dividends paid to offset loss. • He maintained his view that had S purchased alternative preference shares that were irredeemable, S may have received an offer to buyback the shares at a premium rate. As matters remained unresolved, the case was passed to me to decide. As part of my review, I requested some additional details from both parties. From HL, I asked for more detail around the information that would’ve been presented to S during the customer journey.

-- 2 of 9 --

From Mr O, I requested details of the research process that led to the selection of the preference shares and further information around S’s other holdings and investment strategy at the time. In summary, Mr O said: • S’s strategy at the time involved acquiring some irredeemable preference shares and the decision to invest in the L preference shares was predicated on the incorrect description on HL’s website. • S held other irredeemable preference shares at the relevant time. • S would not have proceeded with the acquisition had he understood the shares were not in fact irredeemable as described. A reason for specifically choosing irredeemable preference shares was based on the potential opportunity to sell them at a premium following a buyback offer, whereas a buyback offer for redeemable shares would likely be at par value. • Had the shares been correctly described as redeemable, S likely would’ve purchased alternative irredeemable preference shares and pointed to a potential alternative, which Mr O later acquired personally in June 2024. What I said in my provisional decision After careful consideration of the information provided by the parties, I decided to issue a provisional decision to give both parties an opportunity to respond. I said I had reached a different outcome to the investigator and was minded to uphold S’s complaint. In my provisional decision, I said: “Was it reasonable for HL to rely on the third party information? The Principles for Businesses (‘The Principles’) set out in the Financial Conduct Authority (‘FCA’)’s Handbook require HL to: • Conduct its business with due skill, care and diligence (Principle 2); • Take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems (Principle 3); • Communicate with customers in a way that is clear, fair and not misleading (Principle 7). Incorrectly describing redeemable preference shares as irredeemable risked customers, such as Mr O on behalf of S, failing to understand a key feature of the instrument, potentially impacting their ability to make informed investment decisions. The fact that the shares were incorrectly described as irredeemable is not in dispute. I’m therefore satisfied HL failed to provide S with information that was clear, fair and not misleading. A question for me to determine is whether it was reasonable for HL to rely on information provided by third party suppliers. HL indicated it shouldn’t be held responsible for incorrectly describing the shares as irredeemable because it acted in good faith in relying on information shared by reputable sources. HL said its normal business practice is to ensure the name and description of the securities it makes available on its platform matches what is provided on the EDI database. HL said it places trust in the accuracy of the EDI data due to it being an official source of financial information. While it’s not unreasonable, in my view, for HL

-- 3 of 9 --

to mirror stock names against what is displayed on the EDI as a general rule of thumb, HL’s regulatory obligations require it to do more than simply rely on third party information without carrying out additional due diligence. The Product Intervention and Product Governance Sourcebook (‘PROD’) in the FCA Handbook clarifies what is expected from distributors of investments such as HL. The PROD rules require HL to: • Understand the financial instruments it distributes (PROD 3.3.1R(1)); • Obtain from manufacturers, information to gain the necessary understanding and knowledge of the financial instruments it intends to distribute (PROD 3.3.3R); • Have in place adequate product governance arrangements (PROD 3.3.15R); and • Regularly review the financial instruments it distributes (PROD 3.3.26R). I understand the L shares were first added to HL’s platform prior to the implementation of the PROD rules. HL has also indicated it wouldn’t be reasonable for it to manually review all of the instruments it distributes. However, in light of its regulatory obligations set out above, I’d expect HL to have sufficient controls in place to have enabled it to review the L shares in line with its requirement to regularly review the instruments available on its platform prior to S purchasing the shares. In doing this, I think HL ought to have considered relevant information available from the manufacturer – such as the prospectus, rather than relying solely on third party data when considering how to name and describe the instruments it offered. Had it done this, I’m satisfied it would’ve been alerted to the fact the L shares were in fact redeemable and updated the stock name and description accordingly. HL, by its own admission in its final response letter, indicated it could’ve been more attentive to the third party error. Had it acted more diligently in reviewing the manufacturer’s information as required by the PROD rules, I’m satisfied the error would’ve been identified and its communications amended to reflect the position on potential redemption. Based on what I’ve seen, I’m not satisfied HL has demonstrated compliance with the Principles and PROD rules set out above. It’s my view that HL’s reliance on third party information in determining how it labelled the shares, rather than considering the manufacturer’s literature, resulted in a misunderstanding of how the shares worked. This led to HL communicating information to its customers that was misleading. Regardless of the reputation of the third party sources – HL is ultimately responsible for the information it provides to its customers. S’s contractual relationship was with HL, not the third parties and so S has no recourse to claim against them for losses encountered due to reliance on the incorrect information. HL, on the other hand, may choose to pursue those third parties to recover any costs from them. In my view, it wouldn’t be fair for liability to rest solely with the third parties with whom S has no contractual relationship or standing to complain. Would S have acted differently? I’ve thought about whether S would’ve likely acted differently had the L shares not been incorrectly described as irredeemable.

-- 4 of 9 --

Mr O has provided details of the investment strategy for S at the time, which involved the inclusion of irredeemable preference shares within its portfolio. Mr O had previous experience investing in irredeemable preference shares and indicated a reason for specifically choosing irredeemable preference shares over redeemable preference shares was due to the potential option to take advantage of an offer from the company to buy back the shares at a premium. Redeemable preference shares would likely only be redeemed at par value. Based on what I’ve seen, I’m persuaded the redemption-status of the shares was of key importance to Mr O’s decision to include them in S’s investment portfolio. With that in mind, had the shares been correctly labelled as redeemable, I think it’s unlikely S would have invested in them. I also note Mr O contacted HL upon receiving notice of the redemption to question how this could occur when he understood the shares to be irredeemable. This action further supports my view that the L shares were selected in the belief they were irredeemable. Is it fair to require HL to compensate S? This was an execution-only transaction, so I’ve thought about what was reasonably expected of Mr O in making investment decisions for S and whether he ought to have come across information while researching the L preference shares that would’ve likely alerted him to the error in how they were labelled. In reviewing the shares, Mr O explained he relied on the information provided on HL’s website. I note HL typically includes factsheets for the instruments it distributes. While a copy of the relevant factsheet available at the time the shares were purchased hasn’t been provided, the information I’ve seen indicates there likely was one and I think it would’ve been reasonable for Mr O to have reviewed this in order to make sure he understood the key features of the instrument before investing. I’ve seen copies of internal communications from HL, which notes details of the investigation HL carried out after receiving notice of L’s intention to redeem the shares. The note states a staff member involved in the investigation “found no mention of ‘Irredeemable’ on the factsheet for the units”. As noted above, I’ve not seen a copy of the factsheet, so it’s not clear what information was included, but in my view, the absence of a statement that the shares were irredeemable doesn’t necessarily mean it would’ve been clear to a retail investor that the shares were redeemable. For a retail consumer to understand the shares were redeemable, I’d expect the factsheet to have included details of the potential redemption events. The absence of information setting out when redemption may occur, could lead to a reasonable assumption the shares were irredeemable – particularly as they had been labelled as such. I’ve reviewed some examples of similar factsheets for preference shares on HL’s website and have observed a lack of available detail on potential redemption events. HL’s commentary following its investigation into the shares, stated it found evidence to confirm the shares were not in fact irredeemable within the 200-plus page prospectus. Had there been information on the relevant factsheet to indicate the shares were redeemable, I think it’s likely that HL would have referred to this. Having carefully considered the available information, I think it’s more likely than not that the factsheet for the L preference shares did not contain information which would’ve alerted Mr O to the fact the shares were redeemable.

-- 5 of 9 --

As Mr O was making investment decisions for S on a non-advised basis, I’d expect him to have carried out appropriate due diligence. As I’ve explained above, I’m satisfied the redeemability of the shares was a key factor in his decision-making process. However, as the main description for the shares itself stated the shares were irredeemable (albeit erroneously), I don’t see any reason why Mr O ought to have scrutinised the lengthy prospectus to cross reference the information clearly stated in the stock name. Ultimately, I think it was reasonable for Mr O to rely on the stock description on the basis that HL was obliged to provide clear, fair and not misleading information about the shares to allow him to make an informed choice on whether to invest. I’ve provisionally decided to uphold S’s complaint on the basis that HL ought to have established the L preference shares were redeemable based on its review of the manufacturer’s disclosures and communicated this clearly to its customers. Had the shares been described accurately, I’m satisfied S would’ve invested differently. Fair compensation HL put forward an argument that S has not encountered a financial loss as a result of the shares being redeemed by L at a lower value than they were purchased for. It said due to the payment of dividends throughout the time the shares were held, S is in a better position overall. Mr O has submitted several examples to demonstrate why he disagrees with this stance. I’d like to assure Mr O that I’ve reviewed the examples he provided in detail, but I won’t restate them here. I also note Mr O has suggested he would accept reimbursement of the difference between the price S paid for the shares and the redemption value to resolve his complaint. In assessing what would be fair compensation in the circumstances, I consider that my aim should be to put S as close to the position it would probably now be in if Mr O had not relied on incorrect information supplied by HL. For this reason, I think HL’s suggestion that there’s no financial loss to compensate because S is financially better off compared to its starting point due to payment of dividends is too simplistic. Similarly, I don’t think Mr O’s suggestion to reimburse the difference between the buy and sell prices would be a fair approach to redressing the complaint. In this case, had HL not communicated the L shares as irredeemable, I think it’s more likely than not that S would have invested differently. As discussed above, I think investing in preference shares that were irredeemable was a key element of S’s investment strategy. With that in mind, had the L shares been accurately described, I think S would’ve likely found alternative irredeemable preference shares.” My provisional decision then went on to set out how I considered HL should put things right for S – the substance of which is largely repeated below as my final decision.

-- 6 of 9 --

Further information provided in response to my provisional decision Mr O commented on the time and effort he’d put into researching, presenting and arguing his case. He felt the £150 compensation award did not scratch the surface of properly compensating him and S for the distress and inconvenience caused by HL’s error. He noted my stance that I would not be able to ask HL to compensate for impact caused to him personally, but queried whether I could consider the impact caused to him as major shareholder and director of S. HL said that while it would agree to the redress calculation proposed in my provisional decision, it maintained its view that it was fair and reasonable to expect Mr O to review the relevant prospectus in addition to other documentation prior to making any investment decision on behalf of S. This was a requirement set out in HL’s terms and conditions and data disclaimer. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Where the evidence is incomplete or inconclusive, I’ve reached my conclusions on the balance of probabilities – that is, what I think is more likely than not to have happened based on the available evidence. Having considered the additional comments provided, I’ve not seen a reason to depart from the findings I provisionally reached. I’ll address the additional points raised below, but for clarity, the contents of my provisional decision set out above form part of my final decision, in addition to what I’ve said below. I’ve decided that S’s complaint should be upheld. Should Mr O have carried out additional due diligence? In my provisional findings copied above, I acknowledged that I’d expect Mr O in making investment decisions on behalf of S, to carry out appropriate due diligence. I understand HL is of the view Mr O ought to have reviewed the prospectus in addition to other available documentation before making an investment decision for S, as he was required to do so by HL’s terms of agreement. However, I remain of the view that because the HL platform labelled the L shares as irredeemable in the main stock description, I don’t consider that Mr O ought to have essentially fact checked this information by reviewing the lengthy prospectus document. I’m satisfied it was reasonable for Mr O to rely on the stock description on the basis that HL was obliged to provide clear, fair and not misleading information about the shares to allow him to make an informed choice on whether to invest. Putting things right In explaining how S may have acted had correct information been displayed by HL, Mr O referred to other preference shares S held at the relevant time – Lloyds 9.25% Irredeemable Preference Shares. He also pointed to Standard Chartered plc 8.25% Irredeemable Preference Shares, which he later acquired personally in June 2024. Having carefully considered the circumstances of this case, had the L shares been correctly described as redeemable – I think it’s likely Mr O would have opted for S to invest in either of

-- 7 of 9 --

the alternative preference shares named above, or a combination of both. It’s not possible to say precisely which option he would have chosen for S, but I’m satisfied that what I have set out below is a fair and reasonable way to compensate S. What should HL do? To compensate S fairly, I require HL to: 1. Assume S would have invested in the two other irredeemable preference shares it and Mr O had bought around that time. I understand these are listed on HL’s platform as: “Lloyds Banking Group plc 9.25% Non-Cum Irrd Pref Shares GBP0.25” and “Standard Chartered plc (STAC) 8.25% Non-Cum Irrd Pref”. 2. Assume S would’ve bought the shares named in step ‘1.’ above on the same dates it purchased the L shares. 3. On each of the four occasions S purchased the L shares, calculate how many of the shares named above (split 50/50) could’ve been purchased with the same funds, using the volume weighted average price (VWAP) for the shares on those particular dates. 4. Calculate the dividends S would have received had the shares been purchased in the manner set out in step ‘3.’ between the time they would have been purchased and the date of this final decision. HL should add 8% interest on any dividends that would’ve been paid during this period. 5. Calculate an overall figure ‘A’ representing the amount S would need now (as of the date of this final decision) to purchase the same number of shares calculated in step ‘3.’ plus the dividend income and associated interest calculated in step ‘4.’. 6. Calculate a figure ‘B’, which amounts to the actual value S received for the L shares when they were redeemed, plus the value of any dividends received while S held them. HL should adjust this figure to bring it up to date to acknowledge any investment gains S received from these funds from date of payment to the date of this final decision. It’s not clear what S did with these funds and determining an accurate adjustment figure may be complicated. For the sake of simplicity, HL should determine the time weighted average return of S’s investment account from date of payment to the date of this final decision for each payment event (each date dividends were paid and redemption payment date) and adjust each payment figure in line with the average return value between the relevant dates. 7. The value of ‘A’ less the value of ‘B’ amounts to S’s financial loss. If this results in a positive figure, HL should pay this to S. HL must pay the compensation within 28 calendar days of the date on which we tell it S accepts my final decision. If HL fails to pay the compensation by this date, it should pay 8% simple interest per year on the loss, for the period following this deadline to the date of settlement. Non-financial loss I understand from its response to the complaint that HL offered to pay £150 compensation to acknowledge that it could have been more attentive to the third party error and that it was arranging for payment to be made. As S is the eligible complainant here, I’m unable to

-- 8 of 9 --

consider the impact of any distress and inconvenience that may have been encountered by Mr O personally. Having taken all relevant factors into account, I’m of the view that any distress and inconvenience as a result of HL’s actions has been borne primarily by Mr O here, rather than S and I don’t consider that HL needs to make any further compensation award to S to acknowledge non-financial impact. It would be for the parties to arrange payment between themselves if the offer hasn’t yet been paid. I acknowledge Mr O’s suggestion that as he is the director and majority shareholder of S, HL ought to compensate him for the time and effort he’s put into seeking resolution. However, I maintain my view that as S is the account holder here, I could only direct HL to compensate for any inconvenience borne by S and in the circumstances, I don’t consider that the operation of S has been particularly inconvenienced by HL’s actions to warrant an increased award. I understand Mr O has indicated he may contact HL separately to potentially pursue a compensation payment to acknowledge the impact suffered by him personally by HL’s error. My final decision My final decision is that I uphold S’s complaint. I require Hargreaves Lansdown Asset Management Limited to take the actions set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask S to accept or reject my decision before 18 March 2026. Rebecca Faiers Ombudsman

-- 9 of 9 --