BREWIN DOLPHIN, the stockbroker and portfolio manager, is preparing to defend itself in the High Court against claims that it made the wrong investment choices with a client’s money. The outcome could have implications for thousands of other investors.

Neil Myerson, a solicitor, is suing Brewin for £268,870 for allegedly mismanaging his investments between 2000 and 2003. He argues that Brewin took a high-risk approach with his money, rather than the medium-risk approach he requested.

However, Brewin is planning to argue that this is not the case. Charlotte Black, the firm’s marketing director, said: “We will be vigorously defending this case. I am unable to comment further at this stage.”

The case hinges on whether Myerson can prove that his instructions to take a “medium-risk” approach were not followed. But the term “medium- risk” can mean different things to different people.

Angela Knight of the Association of Private Client and Investment Management Services said: “You only have to watch people crossing the road to see how attitudes to risk vary.”

There are two ways you can seek compensation from a portfolio management company: complain to the Financial Ombudsman Service or go to law. Whichever route you take, poor performance alone will not secure compensation as investment firms are not required to provide specified returns — unless they guarantee to do so.

Rob McIvor of the Financial Services Authority (FSA) said: “Performance is not something that can be managed by regulation. If the manager you choose fails to meet your expectations simply because of a dip in performance, you have to accept that you made a bad decision.”

To have any chance of a successful complaint, you must show that the company failed to follow your instructions.

David Cresswell at the ombudsman service said: “The way we judge a case has nothing to do with the subsequent performance of an investment. Instead we look at how risk profile was measured and try to determine whether or not the management of the funds followed the pattern agreed at the outset with the investor. It is important to ensure that both parties are clear about what sort of approach should be taken.”

You may also have to prove that your manager’s actions could not be explained by market sentiment at the time.

One investor who complained to the ombudsman about the discretionary management agreement he had with a firm, claimed the company had been negligent because it greatly increased his exposure to telecommunications, media and technology stocks in 2000.

However, the ombudsman ruled that most fund managers were buying similar proportions of these stocks for their clients at the time.

Cresswell said: “It is important not to view complaints about investment performance with the benefit of hindsight, but to consider what was known in the marketplace then. We often therefore look at a cross-section of what a portfolio manager’s peers were doing at the time. If their actions were dissimilar to those of the company in question, it adds more weight to the complaint. However, cases still generally depend on what was in the original agreement between the company and the client.”

Complaining to the ombudsman, which costs nothing, does not prevent you taking your dispute to the courts if your case is rejected. However, the ombudsman will generally refuse to investigate cases that have failed in a court of law.

That is why most people choose to complain to the ombudsman first. The cost of suing a company also makes it unviable for many investors.

However, the courts are the only option for anyone hoping to recover losses of more than £100,000, as this is the most the ombudsman can force a firm to pay. There are no limits on the compensation a court can award.

Complaints against financial companies not registered with the FSA must also be dealt with by the courts, as such cases are outside the ombudsman’s jurisdiction. And you will be forced to go to law if you leave it too long to complain. The ombudsman will consider cases only after you have exhausted a company’s complaints procedure, but you must complain within six months of receiving a final response letter.

And other time limits may also apply. You could, for example, be required to complain within a certain time after noticing a problem.

You may also prefer to go through the courts if you want to inspect the papers personally, ask your own questions, or have a formal hearing.

Ann Foster, chairman of the Financial Services Consumer Panel, said: “Far too much of the industry is still characterised by mis-selling, misleading advertising and a failure to treat customers fairly. We should share a goal of restoring confidence.”

If you win a court case against a financial firm, it will pay you the agreed amount, plus any costs you have incurred.

If the ombudsman finds in your favour, it will try to return you to the position you were in prior to your dealings with the firm.

But the service is not a consumer champion. Fewer than half the cases where the ombudsman makes formal final decisions are wholly or partly in favour of the consumer.

It is at least a quicker process than going to law, however. The ombudsman generally takes about six months to resolve complaints, whereas court cases can take years.