The Financial Ombudsman Service has upheld a complaint against Pearson Jones over the advice firm causing “unacceptable delays” in carrying out fund switches, which caused clients a financial loss.
Before being swallowed up by Standard Life, the then Skipton Building Society-owned Pearson Jones acquired advisory firm Parnell Fisher Child in 2007, under which brand this complaint was lodged.
A couple, referred to as Mr and Mrs B, complained the firm took too long to carry out the fund switches it had recommended in May 2011.
The couple each had a portfolio in their own name, and a jointly owned portfolio, all of which the adviser recommended they transfer to a new platform, switching their portfolios to Pearson Jones’ model portfolios.
A recommendation letter explained the capital gains tax implications of switching to the model portfolios, noting Mr B’s investments had unrealised gains worth around £10,000 while Mrs B had just under £16,000.
The adviser explained Mr B was carrying forward losses of just under £25,000 and both also had a CGT allowance of £10,600. He recommended assigning the jointly-held investments to Mr B’s name once they had been re-registered on the new platform.
The primary benefit was to use up Mr B’s losses from previous years, effectively eliminating the CGT liability for both portfolios.
Mr and Mrs B accepted the advice and completed forms received at the beginning of June 2011.
The firm emailed Mr B to confirm one of the funds couldn’t be re-registered and needed to be switched, which would cause a delay.
In early August, the new platform confirmed problems re-registering some of the funds. The adviser chased the old platform where the funds were held and established this is where the error occurred. Shortly after this, a small adjustment was made by the old platform to account for the error and the delay in switching.
By September the funds were ready to be switched, but this action wasn’t completed until December. By this point the markets had dropped, and Mr and Mrs B’s portfolios suffered some losses.
The couple complained and Pearson Jones accepted by September it had been in a position to carry out the switch.
Pearson Jones offered Mr and Mrs B the difference between the performance of the model portfolio they would have been in had the switch occurred in September, and the performance of their existing portfolio.
But Mr and Mrs B rejected the offer and complained to the Fos. An adjudicator considered the complaint and concluded that the compensation offered was reasonable.
Again, the couple did not accept the offer arguing the adviser committed to transferring the joint portfolio into Mr B’s name, but that never happened. They argued in July 2011 the firm could have re-registered all of the funds except the one that couldn’t be re-registered.
In a final decision ombudsman Alessandro Pulzone agreed with the adjudicator, stating Mr and Mrs B’s portfolio suffered losses because of market movements clearly beyond Pearson Jones’s control.
“I agree that Mr and Mrs B should be compensated for the delay in switching their portfolios to the model portfolios,” he said.
“But in itself, the delay in switching their portfolios to the model portfolios didn’t cause a loss to their existing portfolios, and the losses weren’t caused by the fact that the funds were eventually switched to another portfolio.”
If Pearson Jones hadn’t carried out the switch at all, he wouldn’t have crystallised these losses, read the decision notice, adding he would have lost the benefit of carrying them forward for CGT purposes.
By crystallising their losses, they can now be carried forward, said Mr Pulzone. This means in future, they will have the benefit of these additional losses to offset capital gains.
So carrying out the switch, even after it was apparent that there were no capital gains, didn’t actually cause Mr and Mrs B a financial loss.
He did agree that Pearson Jones took too long to do what it said it would do and Mr B should be compensated for this.
However, Mr Pulzone was not persuaded the delay between June and September was Pearson Jones’s fault and so did not request compensation for this period.
Pearson Jones was told to calculate the performance of the model portfolio it had recommended between 23 September 2011 and 15 December 2011, establish the value of the portfolios in September and when they were finally switched, then pay Mr and Mrs B any loss.
