A judge has ruled that an adviser could recommend high risk products even if their client has a cautious attitude to risk – in fact he said the adviser might be negligent not to do so.
The case against Coutts was brought by Les and Janet O’Hare, a couple from Warrington with a total wealth between £25m and £38m.
They became Coutts clients in 2001 after Mr O’Hare heard about its services through a business acquaintance on a golf course in Scotland.
But they since claim their adviser Kevin Shone and Coutts recommended unsuitable investments with no capital protection, including £4m in Novus Global Credit Opportunities, £2.12m in Novus Natural Resources Strategy and £2m in Novus Global Emerging Markets.
In ruling in favour of Coutts, Mr Justice Kerr acknowledged that the O’Hares’ investments were “relatively conservative” before dealing with Mr Shone.
But he said: “I do not think it is the law that a private banker breaches his duty of care if, without irresponsibly encouraging foolhardiness, he advises a client to take higher investment risk than he would otherwise take. I do not think it can be right.
“A lawyer may advise a cautious client who is minded to accept a very low offer of settlement, not to do so, on the basis that the risk of going to trial is well worth running (even though the lawyer will certainly take more payment from the client for going to trial).
“Indeed, it could in principle be negligent for a lawyer not to give such advice, if the offer of settlement were sufficiently derisory and the merits at trial sufficiently overwhelming.
“Similarly, a private banker may have a client whose untutored risk appetite (at a time of very low interest rates for cash investments) is so risk-averse that he would lose out on a bonanza of high returns unless advised about the virtues of equities during a time of sharply rising share prices.
“In principle, an adviser who failed to advise the client to take more risk than he had hitherto taken, might even be negligent.”
Mr Justice Kerr added that while he agreed Mr Shone “played down the risks” of the Novus products, the information he provided for the O’Hares “left no room” for any suggestion they did not understand them.
He said: “The fullness of the information Mr O'Hare was given meant it was impossible to complain that the products were mis-sold to him.”
The O’Hare’s also claimed other investments were unsuitable because they were all placed with Coutts’s parent, RBS, and placed too much money with one institution.
But Mr Justice Kerr also dismissed this on the basis Mr O’Hare was aware of the risks.