The Financial Ombudsman Service has rejected Towergate’s argument it shouldn’t have to pay as much in compensation because a former client’s new adviser could have switched an unsuitable fund.
Towergate Financial (West) Limited accepted it sold a client an unsuitable investment but the way it calculated redress came under fire from the ombudsman.
In 2010 Towergate advised the client, referred to as Mr M, to invest in three unregulated collective investment schemes (Ucis).
In 2014 Mr M complained about the suitability of the investments and in 2015 Towergate worked with the regulator to put in place an independent review of Ucis sold to customers between 2001 and 2013.
This captured Mr M’s complaints and later that year his complaints were upheld.
Redress was considered for all three investments but the parties couldn’t agree on redress calculations for one of the funds.
Towergate proposed to calculate redress by comparing a benchmark value with the value of the fund at a point shortly before it became illiquid.
On this basis, the calculation showed that Mr M had suffered no financial loss.
Mr M disagreed and said the calculation should be based on the fund in its illiquid state.
Towergate argued as Mr M changed financial advisers about three months before the fund became illiquid his new adviser was responsible for reviewing suitability of the Ucis at the time.
Towergate said there was opportunity to sell the investment before it became illiquid however the new adviser’s delay caused Mr M to miss that chance.
Reviewing the complaint, ombudsman Roy Kuku ruled a change of financial advisers can give grounds to consider an “end point” for the previous adviser’s liability.
In such cases, Mr Kuku said allowance must be given for the time reasonably needed by the investor and the new adviser to review existing investments, to consider any changes and to execute such changes.
Mr M and his new adviser took steps to review the Ucis investment, to decide upon selling it and to execute the sale within two months of him moving his investments away from Towergate.
Unfortunately, by the time Mr M sought to execute the sale the scheme was no longer honouring sale requests.
Mr Kuku therefore rejected Towergate’s claim that the new adviser should have acted more swiftly.
For the trouble and upset caused to Mr M, Mr Kuku ordered Towergate to pay £300.
Towergate was told to calculate the amount of compensation it owes Mr M based on the fund being illiquid.
