Sesame has had to compensate trustees who wanted capital protection in addition to an income and yet were recommended a unit trust that did not provide this.
In 1999, the trustees spoke to an appointed representative of Sesame about money from their late father’s estate and explained his wife had a life interest.
They wanted to generate income for her from the investment and were advised to invest the capital in two different ways.
They only complained about the advice to invest into the unit trust, which was called a Protected Portfolio Trust.
A total of £12,500 was invested into the unit trust and it was set up so an income was paid to their late father’s wife quarterly.
A feature of the product was a capital protection facility on death of the “life interest”.
But in 2015 the trustees encashed the investment and received back just over £6,500.
They complained as they expected to receive the full amount of capital invested back as they had the capital protection facility.
Sesame explained that the capital protection feature meant they would receive back the total value of the investment when taking account of the withdrawals and a total of £7,500 income had been taken from the unit trust over the years.
As a result the amount the trustees received back, added to the income taken, was greater than the original amount invested.
But in a final decision, ombudsman Charlotte Wilson ruled Sesame would have to cough up compensation as the trustees wanted capital protection in addition to an income and the unit trust didn’t provide this.
No evidence was produced by Sesame to suggest the capital protection feature was explained to the trustees.
Ms Wilson said: “It is clear from the will that the trustees’ late father left a life interest to his wife. And that the trustees were to pay any income that derived from the investment to her.
“But this didn’t mean that they wanted income to be taken from the capital invested. Rather the trustees understood that any additional income the capital generated should be paid. That’s not what happened here.
“When they invested the money into the protected portfolio trust they were told they had capital protection – and they took that to mean that when it is surrendered, the very least they would get back is the amount they invested, regardless of income.
“But the income was set up to be a fixed amount, no matter what the growth of the investment was. And because the growth hasn’t matched the amount of income paid, the capital has reduced over the time the unit trust was in place.
“I can see how the trustees would have been confused. The suitability letter in 1999 talks about selling units and yields but doesn’t really explain, in simple terms, that the income would come out of the capital invested – if the investment didn’t grow at the necessary rate.