Tenet must now cough up £150,000 for advice given by an appointed representative back in 2006.
The client, known as Mrs B, had assets with a value of more than £2m, the majority of which were property.
Tenet’s appointed representative identified that Mrs B therefore had a large potential liability to inheritance tax and advised her to take out borrowing to reduce the value of her estate.
Mortgages were arranged on four properties Mrs B owned and the money borrowed was given away using a trust arrangement involving offshore bond investments via a discounted gift trust.
Income from the bond was intended to pay the interest on the mortgages, so the arrangement would effectively be self-financing. It would also be a potentially exempt transfer for IHT purposes and an immediate ‘discount’ would be allowed, meaning that some of the money in the trust would immediately fall outside Mrs B’s estate.
The remainder of the amount, as a potentially exempt transfer, would fall outside Mrs B’s estate after seven years. Money put in the trust was initially invested in a Selestia portfolio fund, on the recommendation of the AR.
Later, after that investment had fallen significantly in value, the AR advised the trustees to sell the portfolio fund and make a different investment. That advice is subject to a separate complaint.
According to an initial Fos adjudication, the adviser failed to fully explain the risks and while they assessed the trustees as having an attitude to risk of six out of 10, the invested funds were borrowed, so the level of risk associated with the investment was greater.
However, Tenet did not agree with the adjudicator, arguing the adviser had not recommended a particular level of risk and the trustees had completed online risk profile questionnaires. Tenet said the trustees had signed to confirm their acceptance of the level of risk and argued the portfolio matched the risk level.
In a final decision ombudsman John Pattinson said: “It is not sufficient to say the advice was suitable, because the trustees ticked the six box on a form. This was not a box ticking exercise – it was a complex arrangement involving a lot of money, with multiple associated risks.”
Two of the mortgages, which were interest-only, had 13-year terms and the ombudsman stated it was not clear how the mortgages were going to be repaid, as the money borrowed had been given away.
It was also possible that Mrs B would outlive the terms of the other mortgages.
Mr Pattinson did not believe the trustees fully understood the risks associated with the arrangement.
Tenet argued their AR was only one of the advisers involved in advising Mrs B in respect of this arrangement, adding that the adviser was entitled to assume Mrs B’s solicitor had given advice on various aspects of the trust arrangements and their suitability.
While the Fos ruled there was evidence to show that Mrs B’s solicitor had some involvement, the letters from the legal representative show the limit of their involvement appeared to have been making arrangements to facilitate what the AR had recommended.
Ideally, Tenet should become the beneficiaries of the trust and in exchange paid Mrs B the money she put into it (less the income she has received from it), plus the interest she has paid on the mortgages.
That would put Mrs B in the position she would be, had the advice not been given, read the decision. However, the amount put into the trust was significantly more than the maximum award Fos can make, which is £150,000.
Mr Pattinson said that Mrs B has been left with a large debt as a result of the advice, which will have caused her “significant upset” while the pursuit of the complaint has caused them “significant trouble”.
He added that the recommendation is not part of the Fos’ determination or award and does not bind TenetConnect. “The trustees may want to consider getting independent legal advice before deciding whether to accept this decision.”
When asked if the trustee would pursue Tenet through the courts, a spokesperson at Tenet said they would not comment on any specific case, redress paid or adviser conduct.
However, it added that any complaint is taken seriously and any action by an adviser that falls outside the authority granted to them is investigated.