Regulation  

Wealth manager must pay damages over risk profile failings

Wealth manager must pay damages over risk profile failings

A wealth manager has been told to pay damages to a client after it was found to have deviated from the risk profile and failed to sell poorly performing assets.

David Rocker took Full Circle Asset Management to court after his £1.5m investment fell by more than 50 per cent, alleging the losses were caused by the firm's breaches of the contractual terms over how it managed his money.

Mr Rocker's particular claims included the fact that Full Circle Asset Management failed to operate a promised "stop loss" policy that would have limited his losses and that his money was invested above the agreed risk limits.

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Mr Justice Morris found in favour of Mr Rocker on both claims but said the amount of money owed to him would need to be recalculated.

Mr Rocker was invested in the medium risk Inner Circle portfolio, reserved for the firm's clients with greater levels of funds, which had a permitted range of risk scores between 3.5 and 6.5 but Full Circle Asset Management said this range had a tolerance of plus or minus 0.5.

This would have allowed the company to exceed the agreed level of risk for "short periods" but the judge said aspects of this evidence were "contradictory" since Full Circle Asset Management seemed to suggest there was a 0.5 tolerance plus the ability to flex above that tolerance for less than a sustained period.

Mr Justice Morris said some of the evidence on this issue was "so confused as to be unreliable".

He said: "First, in my judgment, there is no justification for allowing both a 0.5 tolerance so as to increase the range and flexing above that increased range.

"Nor am I satisfied that a tolerance of 0.5 should be allowed.

"As accepted in cross-examination, if allowed in all circumstances it would have the effect of increasing the band to a de facto three to seven across the board. In that event, the tolerance is no longer a measure to allow for short term fluctuations.

"Finally, whilst the gap in the later score ranges for 'medium' and 'aggressive,' might be seen as some support for a tolerance, that point is not strong on the facts here.

"Mr Rocker's subsequent customer risk profile was 57, and not in the crossover area of 60 to 65, where there might be an argument for such a tolerance."

Full Circle Asset Management had also submitted that there was no breach of mandate if it happened with the express knowledge and consent of Mr Rocker.

The wealth manager argued this was the case in certain periods but Mr Justice Morris did not agree.

He said: "As regards an email of 14 December 2011, whilst [John] Robson [Full Circle Asset Management's chief investment officer] stated that he planned to raise the level of risk, nothing is said about the levels to, and from, which risk was to be raised and there was no mention of breaching the medium risk band.