Royal London has been ordered by the Financial Ombudsman Service to compensate a consumer who was advised to put his money in investments deemed “too risky for his circumstances”.
Mr A complained about the advice he received from Royal London Unit Trust Managers to invest £4,000 into the UK Growth Trust fund in 1999 - split between an Isa and an ‘overflow’ account.
An adjudicator previously let both parties know he was of the opinion that the should be upheld, stating the investment Mr A was advised to go into was too risky for his circumstances.
He recommended that a comparison be made with the returns Mr A received on the actual investment and an investment benchmark representing the types of returns he could have received if taking a small amount of risk and that the business should pay any resulting loss plus interest.
Mr A previously accepted this assessment, but no specific response was received from Royal London about the adjudicator’s points on the sale of the investment and the intended method of compensation.
As such, the matter was referred to ombudsman Ayshea Khan for a decision, who came to the same conclusion for broadly the same reasons.
At the time of the sale, Mr A was around 30 years-old and was earning a regular salary.
He had an endowment mortgage and had made some provision for a pension. He had just over £1,000 in savings, but after covering all of his outgoings, did not have any monthly disposable income.
The Fos stressed the Royal London adviser had a duty of care to ensure his recommendations were suitable.
“Having looked at his circumstances, I can’t agree that this happened and that the unit trust in question was suitable for Mr A,” stated Ms Khan. “I accept he wasn’t a first-time investor, but anything he had previously taken out were all lower risk products.”
The make-up of the unit trust was heavily equity based, explained the decision notice, so in the ombudsman’s view it was more towards the balanced end of the risk spectrum, but Mr A was not someone who could tolerate a balanced risked investment.
Ms Khan went on to note the risk of losing money was greater in this fund, and given his small level of savings and the fact he had no disposable monthly income, if Mr A had made any losses, it would have been very difficult for him to make them up.
A recommendation to invest into the UK Growth Trust fund was therefore unsuitable and Mr A was disadvantaged by investing.
To put things right, the Fos directed Royal London to pay fair compensation by comparing the performance of Mr A’s investment with that of a suitable benchmark and pay the difference between the fair value and the actual value of the investment.
peter.walker@ft.com
