Capital Gains Tax  

Taped calls fail to save adviser from compensation bill

Taped calls fail to save adviser from compensation bill

WH Ireland has been told to cough up compensation to a client despite claiming the calls the adviser taped with the client show they haven’t done anything wrong.

In 2013 Mr M had 125,000 shares in a company at a book cost of about £11,000 (an average of around £0.09 per share). 

He began the practice of selling, on WHI’s advice, portions of this holding each fiscal year in order to make use of his capital gains tax (CGT) allowances. 

In 2013 he sold 65,000 shares, yielding about £31,000. 

In February 2014 he sold a further 15,000 shares and realised about £11,000. 

He then had 45,000 shares left. Between the middle of 2014 and early 2015, he sought to sell more shares for the same CGT related purpose. 

But Mr M said at this point his adviser discouraged him from selling any more shares, even when the market price was around 90p per share as he was told the share price was likely to rise further. 

Instead, the share price dropped drastically, before the shares were suspended and re-quoted at a price below their book cost. 

In a final decision Roy Kuku, ombudsman, said: “There appears to have been no need for a speculative approach towards the sale of the shares and Mr M should have been advised to sell them in July or August 2014. The advice became more unsuitable as the adviser saw the share price falling. 

“The call notes show that he was aware, in October 2014, that the price had fallen from £0.80 to about £0.53 per share around the first two weeks of that month. At that point, it was unreasonable of him not to review his earlier optimism and not to revise his recommendation to Mr M, with a view to advising him to sell the shares. Overall, I am satisfied that Mr M’s complaint should be upheld.” 

WH Ireland argued the ombudsman had no basis to be “sure” that Mr M gave their adviser instructions to sell his shares.

The intermediary argued their telephone records – supplied to the ombudsman - were complete and served as reliable evidence of what was discussed between Mr M and the adviser.  

WH Ireland added their adviser acted in good faith and in Mr M’s best interest at all times as they did not benefit financially by advising him not to sell the shares.  

But Mr Koku ruled WH Ireland’s telephone records were not complete and that on the balance of probability he believed the share dealing advice was wrong.

Mr Koku said there was regular and sometimes daily ongoing contact between Mr M and the adviser, through telephone calls conducted from the adviser’s office and his mobile phone (which were not recorded). 

Given this context, Mr Koku said the number of telephone notes submitted by WHI could not possibly cover all of the office based telephone calls that took place over the relevant eight months – and did not cover any of the telephone calls, over the same period, that took place through the adviser’s mobile phone.