Ombudsman Lesley Stead has told Beaufort Securities to pay compensation after concluding that the investments selected by the firm for Mr F’s Sipp portfolio were unsuitable.
According to the FOS report, Mr F, 64, transferred the benefits of his Sipp with product provider A to a Beaufort Securities discretionary fund managed Sipp on the advice of his IFA.
Mr F said that he’d complained to his IFA on 31 December 2015 and the IFA’s immediate response was that Beaufort Securities hadn’t followed instructions by investing in speculative stocks.
Mr F claimed that he had suffered “significant financial loss as a result of the transfer proceeds” being invested in these stocks – when it had been agreed he wanted a low risk investment.
The IFA’s ‘Risk Profiler Report’ for Mr F showed that his risk profile was ‘Profile five – Low medium risk’ out of ten risk profiles overall. This meant that Mr F was “about average in how much risk he wanted to take with his investments” according to the FOS.
The FOS stated: “Mr F’s stockbroking account dated 30 December 2015 set out details of seven investments with a ‘book cost’ of £314,972.04 and a value of £243,890.52. At least three of those investments appear to have been listed on the AIM Stock Exchange, all of which were showing substantial losses compared to their book value. Another investment appears to have been listed on the ISDX Growth Market.”
The client said the total value at this point was now £249,000, a loss of over £71,000.
Beaufort Securities outlined the following reasons why it was rejecting the complaint when it was contacted by the FOS:
• On the IFA’s ‘Risk Profiler Report’ for Mr F dated 7 April 2015, Mr F answered 'Agree' to the question "To achieve high returns, it is necessary to choose high-risk investments". And he answered 'Disagree' to the question ‘Compared to the average person, I take lower financial risks.’
• It had spoken to the Discretionary Fund Manager (DFM) responsible for the stock selection in the portfolio. He had set out reasons as to why he believed ‘The client’s portfolio was constructed in line with his risk profile and time horizon in mind, as provided to it by his IFA and that the client made investments in April 2015 citing a 10 to 15 year time horizon.’
• It was rejecting the complaint because the client's portfolio was in line with the risk profile agreed between the client and the IFA. In addition, the performance of the portfolio, designed for a 10 to 15 year period, shouldn’t be judged on the first (economically) turbulent year alone - short-term performance can fluctuate considerably in any portfolio.
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Ombudsman Ms Stead said: “I agree with the adjudicator that the complaint should be upheld and for the reasons he gave – essentially I don’t think the investments selected by Beaufort Securities for Mr F’s Sipp portfolio were suitable.”
She said: “Mr F answered ‘Disagree’ to the question ‘Compared to the average person, I take lower financial risks’. But I don’t think that implied he was prepared to take a high level of risk. Again I’d agree that his answer could also be interpreted to mean that he takes the same level of financial risk compared to the average person.
“So I don’t think there can be any real dispute that Mr F wanted to adopt a low/medium investment strategy. I don’t think the selected investments matched that.”
She pointed out that Mr F highlighted one (Eastbridge investments) that lost almost 75% of its value. It had a ‘book cost’ of £80,820 with the value of that investment being £22,988.51 as at 30 December 2015.
Ms Stead said: “I’ve noted what’s been said about that investment, which was listed on the AIM market of the London Stock Exchange. I don’t see that investing 25% of Mr F’s transfer monies in such a company was suitable for someone with an identified ‘low/medium’ risk profile.”
She added: “I don’t consider such investments were appropriate for an investor who’d been identified as having a low/medium risk profile. The portfolio was too high risk for such an investor."
She instructed the firm to pay compensation with the aim to put Mr F “as close to the position he’d probably now be in now if he hadn’t been given unsuitable advice”.