The Financial Ombudsman Service ruled in a decision published in October that the wealth management firm must put the investors back into the position they would have been in had they not invested in the offshore product back in 2007.
It follows a previous adjudicator’s findings that the investment adviser had failed to adhere to its clients’ wishes to have their capital protected, which Coutts appealed.
According to the Fos, Coutts’ original suitability report recorded Mr and Mrs W’s objective as being to ensure their funds grew in line with inflation, or a modest amount more than this. It also noted they wanted long-term capital growth and income protection in real terms.
Despite this, Coutts advised the pair to invest in a Clerical Medical offshore bond. This was part of wider advice to invest £1.5m in a Coutts portfolio, which “did not have any capital security but significant equity content with 40 per cent of this in hedge funds”, the ombudsman said.
Their investment fell in value, leading to the clients’ complaint.
The ombudsman also said Coutts agreed to switch the couple’s money from the ‘wealth enhancement’ portfolio to the ‘wealth preservation’ one after they expressed concern about the investment in a meeting in 2009. The new portfolio had a lower level of risk, which further indicated the clients weren’t happy with the risk in their initial investment, he said.
But Coutts disagreed with the adjudicator’s initial findings. The private bank argued it had already paid significant redress in relation to other investment advice given in 2007, which resulted in Mr and Mrs W committing £1.2m of their money to various products. When this redress is taken into account, the risk level posed by this investment is acceptable, Coutts said.
Besides, the company argued, the investment was excluded from the Financial Conduct Authority’s review of advice failings at Coutts. A skilled person appointed by Coutts at the time had concluded the advice was suitable.
Coutts entered an agreement with the regulator to review its investment advice process in 2014 after detecting there could be problems with its advisers’ risk assessments and investment sales. It was said to be reviewing investments held by clients after November 2012. Mr and Mrs W’s investment was surrendered in 2012.
However, the ombudsman, who took over the case after Coutt’s appeal said: “The FCA’s decision not to enforce a general review of this particular product has no bearing on whether it was suitable for Mr and Mrs W’s particular circumstances and objectives. Equally, while Coutts may have asked a ‘skilled person’ to review this investment it does not, and cannot mean this service should not assess whether this was a fair and reasonable recommendation in line with our obligations.”
The ombudsman maintained he did not think the level of risk the offshore bond posed was right for the clients and upheld the adjudicator’s decision to order compensation.
In addition, he ordered Coutts to pay 8 per cent simple interest per year on any loss from the end date of the investment to the date of settlement in 2012.
The ombudsman also advised the clients to seek legal advice before accepting the offer, in case the compensation amount exceeded the £150,000 the Fos can legally award.
In this case more compensation could be recovered through the courts but only if no previous offer from the Fos has been accepted. The couple had until 6 November to decide.
carmen.reichman@ft.com
