Borrow to invest advice haunts Positive Solutions

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Borrow to invest advice haunts Positive Solutions

Positive Solutions has been ordered by the Financial Ombudsman Service (Fos) to compensate a couple for unsuitable advice and tax liabilities arising from investments.

Between 2005 and 2008, Mrs B and Mr H made several investments in bonds, with several switches and partial surrenders occurring in the following years.

The pair said the objective for their investments was to assist their subsistence during the period in which they sought to establish their new business.

They said that, overall, the investments were mainly dependent on the re-mortgaging (and equity release) of their home – which raised £200,000, the majority of the money used for the investments.

In 2017, only around £1,500 was left in two of the bonds.

A tax liability arose from the investments around 2015, which Mrs B and Mr H said was unexpected.

They made a complaint to Positive Solutions, which was bought by Intrinsic in 2013, and asked to be put in the position they would have been in if none of the investments had taken place.

The firm, based in Newcastle upon Tyne, responded that its responsibility for the adviser stopped in December 2010, when he stopped being authorised through Positive Solutions.

The firm also argued that there is no evidence of re-mortgaging advice given to the couple, and that at the time of the complaint the investment events were outside the relevant time limits.

The adviser, however, accepted some responsibility for the tax liability that arose from the investments and had personally repaid Mrs B and Mr H around £32,000 redress for that.

Positive Solutions made a settlement offer to pay the net remainder of the tax liability in addition to a payment of £1,000 for the trouble and upset they had been caused.

This offer was made in the context of goodwill, however in terms of the merits of the complaint Positive Solutions concluded that the adviser’s investment advice was suitable.

Mrs B and Mr H did not consider this outcome, and offer, to be sufficient. They asked for compensation for unsuitable investment advice too.

In his determination, ombudsman Roy Kuku addressed this issue – since the firm had already volunteered to solve the tax liability issue and the borrow-to-invest issue was out of time.

While Positive Solutions argued the couple made an informed decisions about their investments based on ample information given to them, and based on their acceptance of the high risk warnings, Mr Kuku argued the relevant question was more about the firm's duty to "recommend suitable investments to them that matched their circumstances".

He said: "I am not persuaded to draw the inference that Positive Solutions has invited us to draw – that is, to conclude from their new business venture at the time that Mrs B and Mr H were high risk takers.

"It is not unreasonable to say that it should have been foreseeable to Positive Solutions that Mrs B's and Mr H's business (or, arguably, the average start-up business) would need a time (perhaps a number of years) to find its feet.

"Income from the investments could only become relatively reliable if there was a reasonably good prospect of the underlying capital being preserved, at least, and then good prospect of its growth.

"Both of these prospects were significantly uncertain because their capital was exposed to high risks in the bonds. Such uncertainty was a mismatch to Mrs B's and Mr H's circumstances."

Mr Kuku ordered Positive Solutions to compensate the couple, by comparing the performance of each investment bond to a benchmark composed in equal parts by the FTSE UK Private Investors Income Total Return index and the average rate from fixed rate bonds.

The firm will then have to pay the difference between the fair value and the actual value of the investments.

If the actual value is greater than the fair value, no compensation for financial loss is payable.

Positive Solutions will also have to pay 8 per cent interest, alongside any income tax derived from that payment.

The Intrinsic network firm also needs to pay Mrs B and Mr H £21,664.48 for the outstanding tax liability issue, and £1,000 for the trouble and upset caused to them in the matter.

The firm also needs to provide Mrs B and Mr H with the calculation of redress for each investment bond in a clear and simple format, the Ombudsman said.

Since the Fos can only make a money award requiring a financial business to pay compensation of up to £150,000, Mr Kuku is recommending that Positive Solutions pays Mrs B and Mr H any balance above this figure.

In October, the Financial Conduct Authority published proposals to increase the maximum compensation to be awarded by the Fos to £350,000, up from its current limit of £150,000.

maria.espadinha@ft.com