A claims manager represented a client referred to by the Financial Ombudsman Service as Mrs F.
She was in her late 50s, had a modest income and no dependants, and in addition to her Isa and Pep, had savings of some £21,600.
Positive Solution’s fact find and suitability letter showed she wanted “potential for above average growth, good historic fund performance, higher fund management rating than [her] existing investments, the option for future fund switches if desired and guaranteed death benefit”.
Her attitude to risk was classified as medium, which was explained as being “prepared to accept a degree of fluctuation in the value of your investment over the medium to long term in return for potential higher growth”.
Mrs F invested £22,000 from her Pep in an Isa, which was split equally between four funds, three of which invested in equities and the fourth in property. The equities were predominantly UK, but each fund could include some overseas investments.
She also invested £8,500 from her existing Isa in another Isa and added £100 a month to this investment. This was split between two funds, both investing mainly in UK equities.
The funds did not perform as well as Mrs F would have wished and in 2014 she employed a claims management company.
The CMC raised a number of issues, including the claim that Mrs F was not told her capital was at risk and that she was not advised to retain sums for emergencies or to pay off her store card debts.
It also said that Mrs F did not understand the risks inherent in her investments and that she had limited investment experience.
Positive Solutions rejected these complaints, addressing each one in detail and concluding the advice was suitable.
The claims management company then brought the complaint to the Fos.
In addition to the previous complaints, the CMC then suggested the adviser ‘churned’ the investments to obtain commission.
An initial Fos adjudicator said that the complaint should be upheld. While the adjudicator was satisfied Mrs F was willing to take some risk and invest her funds, they felt the funds Mrs F invested in lacked diversification.
The adjudicator believed that funds with more diversification would have been suitable for Mrs F’s attitude to risk and objectives.
However, ombudsman Ivor Graham reviewed the case and ruled that Mrs F was not a novice investor and had some experience of investments with her previous Pep and Isa.
In a final decision, he rejected the complaint and said the diversification was sufficient, bearing in mind Mrs F had money on deposit.
He said: “It was clear that she had sufficient funds to deal with any emergencies and I gathered that she regularly paid off her credit card debts so there was no need to address this.
“I didn’t consider this was a case where the adviser persuaded Mrs F to change investments merely to gain commission,” Mr Graham continued, adding that “I do not perform the role of the industry regulator and I do not have the power to make rules for financial businesses or to punish them”.
He concluded that just because an adviser receives commission from his advice does not mean “that it is given purely out of self interest”.