St James's Place Wealth Management has come under fire for giving unsuitable advice to invest in three enterprise investment schemes.
An SJP client, referred to as Mrs H by the Financial Ombudsman Service, said the advice she received to invest in three EIS was unsuitable as the investment was too high risk and SJP had misled her about the timescale for the investment.
Mrs H had attended a confidential financial review in January 2016 with SJP and during the meeting tax efficient investments were discussed.
SJP recommended Mrs H should invest in three EIS, which would reduce her income tax liability for the tax year 2014 to 2015.
Mrs H recalled being told she would receive tax relief certificates within three to six months and this was important to her because she was due to retire in March 2017.
She also recalls being told that she would be able to exit the investment within three years of her shares being allocated.
Mrs H invested £35,167 in each of the three EIS (£105,501 in total) and provided cheques to SJP on the day of the review.
The shares were allotted in March and April 2016.
When Mrs H began to chase her tax certificates in September 2016 she found out they wouldn't be available for 12 to 18 months.
In fact, Mrs H didn't receive the EIS tax certificates until July 2017 to March 2018, so she won’t be able to repatriate the capital funds for most of the investment until late 2020 to mid-2021, if not later.
She added SJP had failed to respond to her queries within a reasonable period and she was forced to contact the EIS providers directly to obtain information about the timescales for the tax certificates and repatriation of funds.
But a spokesman for SJP argued EIS was suitable for Mrs H as this investment vehicle provided the tax relief she was looking for.
The spokesman for SJP added Mrs H was advised that EIS carried a much higher level of risk and this was highlighted in the suitability letter along with the fact delays in the tax relief were possible as the money might not be invested immediately.
SJP argued the main features and benefits of EIS were outlined in the fund fact sheets but Mrs H said she hadn't been given any sheets at the time of the meeting.
The ombudsman thought Mrs H had given a plausible account of this as she had provided cheques for the investments on the day of the meeting, which suggested she hadn't been given any further information to review before trusting SJP with her cash.
Ombudsman Sarah Tozzi said: "There was nothing to show that the significant risk of losing the investment was properly explained.
"EIS are non-mainstream, complex, illiquid, specialised and speculative investments, where there is a real risk of losing the original investment.
"I wasn't satisfied that this was adequately explained to Mrs H at the time, so I didn't think it was enough for SJP to rely upon the EIS declaration.
"As Mrs H was receiving advice from SJP, it was reasonable for her to assume that investing in the EIS was suitable for her circumstances, objectives and attitude to risk.
"I wasn't satisfied that Mrs H would have invested if she would understood the risks involved."
The ombudsman ordered SJP to pay Mrs H £2,000 for her distress plus an amount that a suitable, alternative investment to the three EIS would now be worth.
emma.hughes@ft.com
