St James’s Place has been cleared of any wrongdoing by the Financial Ombudsman Service (Fos) after a client complained that its advice to invest in enterprise investment schemes was unsuitable.
The firm was referred to the ombudsman after a client claimed he was wrongly advised to use EIS investments to mitigate tax liabilities.
He claimed the schemes failed to be as effective in mitigating these liabilities as he had been led to believe by SJP advisers.
The ombudsman disagreed SJP's EIS advice had been unsuitable but said the adviser had failed to explore the client’s retirement priorities thoroughly in order to give the client a more comprehensive picture of his situation.
The client had been earning about £400,000 a year at the time of the initial advice, creating a £160,000 tax liability, but was about to retire.
He claimed because his retirement reduced his income, it constrained his ability to benefit from loss relief from the EIS investment.
He claimed he was not made aware that loss relief could not be rolled over indefinitely or claimed against income tax in future years.
The client said his inability to claim loss relief effectively changed his risk profile, arguing that, with loss relief, he stood to lose a maximum of 40 per cent of his investment, but without it, he could face losing 70 per cent, more than he had appetite for. FOS disagreed.
In its initial decision in April 2018, the ombudsman considered the documentation between the adviser and the client, noting that the client had acknowledged the "high risk nature" of investing in EIS.
The initial adjudication found written evidence that the client had described his attitude to risk as "high".
In the final decision ombudsman Alessandro Pulzone, said the client’s arguments on loss relief failed because he referred to them as a "certainty" when loss relief could never be a certainty, whether retired or not.
Mr Pulzone concluded he was satisfied that the advice given by SJP was suitable, particularly given the client’s financial background and the Financial Ombudsman Service refused to uphold the complaint.
Mr Pulzone added: "I agree that SJP could’ve explored [the client’s] retirement priorities more thoroughly – in particular, when he intended to retire and the extent to which he was intending to take an income after retiring.
"But I don’t’ agree that, in the particular circumstances of his case, the advice he received was unsuitable."