David Jones Financial Planning Limited has been told to compensate a client for unsuitable advice, despite the fact the discretionary managed portfolio he recommended increased by 45 per cent between March 2009 and April 2011.
In 2005, DJFP advised a client, known as Mr G, to transfer an existing £165,000 investment into a new portfolio under the discretionary mandate of Firm B.
Some six months later, the adviser recommended Mr G invest another £45,000 to £50,000 into Firm B’s management under “a more speculative approach”.
Mr G also invested in an Isa on DJFP’s advice, again under Firm B’s management. This was originally invested on the same basis as the main portfolio.
At some point in late 2007 to early 2008, the “speculative equity” was replaced by more mainstream equity funds.
The values of the portfolio fell during the financial crisis. Mr G was concerned by this and asked several times about “exit strategies”.
DJFP’s advice throughout was for Mr G to remain invested, so he could benefit from an eventual upturn.
Back in September the ombudsman ruled against the adviser, but DJFP disagreed and pointed out that before the advice to invest in the discretionary portfolio, Mr G’s funds were invested with 100 per cent exposure to equities.
DJFP’s added that the advice was suitable for Mr G’s approach to investment risk, lifestyle and investment objectives, noting that it represented less than 20 per cent of his overall wealth.
The adviser argued that the advice to remain invested proved successful and between March 2009 and April 2011, Mr G’s portfolio increased by 45 per cent.
The investments were then transferred away in August 2011.
Ombudsman Louise Bardell said that the fact Mr G’s money was previously invested 100 per cent in equities via various managed funds was not relevant.
“Because 90 per cent of Mr G’s capital was invested in assets that exposed his capital to material risk, with at least 20 per cent at very high (speculative) risk, I don’t think it was suitable. I think the risk level was too high,” she stated.
“My conclusion is that the advice was unsuitable, regardless of what Mr G had invested in before.
“My view, having reconsidered the correspondence, is that the high level of Mr G’s concern in January 2008 was very clear. Mr G asked clear questions about “exit strategies”. I think it was reasonable for Mr G to ask at what point the adviser would recommend an exit.
Ms Bardell accepted that this was a very uncertain time. “But whilst the adviser replied with reassurance each time, he didn’t give a direct answer. I’m not convinced the adviser presented the options clearly to Mr G.”
To compensate the client, DJFP have been told to compare the performance of Mr G’s investment with that of the benchmark and pay the difference between the fair value and the actual value of the investment.
If the actual value is greater than the fair value, Fos stated that no compensation is payable.