An advice firm has been ordered to compensate a “vulnerable” client by the Financial Ombudsman Service after it failed to assess her financial position and therefore gave unsuitable investment advice.
A client of Springfield Financial Services complained to the Fos about the investment advice she received ,which she said had put her capital at risk and would cause losses at point of surrender.
The client, who the Fos called Mrs G, also argued that she hadn’t been in the right position to understand the advice given and make “such a momentous decision” about her future finances.
Springfield rejected her complaint saying it was satisfied the adviser in question had acted “professionally and appropriately”.
According to the adviser, Mrs G was receiving £45,000 to £50,000 a year from pensions and other state benefits. Her core outgoings were £25,000 and she had a £500,000 mortgage-free property and around £340,000 in capital of which she added £1,000 each month.
Therefore she was recommended investments which matched her risk profile, which had a capacity for small losses, something Mrs G was in a position to absorb, according to the adviser.
But Mrs G contested all of these claims including the adviser’s figures about her situation.
Instead she provided evidence showing that her late husband’s financial affairs had not yet been resolved and that the estate was in significant equity. This reduced her capital by £80,000.
An adjudicator at the Fos decided that Mrs G’s complaint should be upheld.
He said that at the time of advice, Mrs G was recently widowed, had lost her husband’s income and had stopped working. So she was going through a period of financial change while still grieving for her loss.
Therefore, he said, Springfield should have treated her as a vulnerable client.
He said it was premature for Mrs G to be investing and she should have been advised to wait until she’d had time to adjust to her new circumstances.
However, as Mrs G had been concerned about the level of return she was getting having all of her capital on deposit, the adjudicator concluded it was reasonable to recommend she invested some money. But he thought the adviser’s recommendations had “exposed her to a greater degree of risk than would have been suitable for an investor in her situation and with no previous investment experience”.
The adviser had put more than half her assets in a portfolio with 85 per cent exposure to equities and property, which the Fos deemed unsuitable considering her circumstances.
But Springfield contested this saying it had seen no persuasive evidence that Mrs G was a vulnerable client and believed her portfolio was lower risk than her attitude to risk indicated.
Ombudsman Tony Moss agreed with the adjudicator and found the adviser had not fully assessed Mrs G’s financial situation.
Mr Moss said: “From what I’ve read, some of her alleged income sources were not correct, such as the children’s pension money which was held in trust and therefore should not have been included as part of the household income.