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Adviser to compensate client over 15% return bond investment

Sprouting-Money-Growth-Emerging-Currency-700.jpgPersonal Touch Financial Services must compensate a client for the unsuitable advice it gave to invest £41,000 into a bond promising high returns.

According to a Financial Ombudsman Service decision, Mrs H complains she was given unsuitable investment advice by a financial adviser working for an appointed representative of PTFS.

The case dates back to March 2012 when Mrs H invested £41,000 into a ‘Merco Bond’ after discussions with adviser Mr L.

The investment was intended to pay annual interest of 15 per cent with the original capital returned in full at the end of a three year term, in April 2015.

When the return of capital failed to materialise Mrs H began to question the advice and so her representative complained on her behalf, first to Mr L directly and then to PTFS.

PTFS argued neither it nor the appointed representative, FSS were responsible for the advice, or the subsequent problems Mrs H had experienced and FOS could not look at the complaint.

It felt the advice had been conducted by the adviser outside of his association with FSS and/or PTFS and highlighted that both companies had been entirely unaware of Mrs H’s investment and had received no commission or other remuneration in relation to it.

The complaint was then referred to FOS where the adjudicator disagreed with PTFS’ view and explained why he thought he could consider the complaint.

The adjudicator noted that Mr L appeared to have been involved in advising Mrs H to surrender an existing Zurich investment in order to generate the funds then invested in the Merco Bond.

He was of the view that both the disinvestment and investment were regulated activities and the acts complained about were done in the carrying on of a regulated activity.

The adjudicator highlighted Section 39(3) of the Financial Services and Markets Act 2000 concerning PTFS’ potential responsibility.

It says: “The principal of an appointed representative is responsible, to the same extent as if he had expressly permitted it, for anything done or omitted by the representative in carrying on the business for which he (i.e. the principal) has accepted responsibility.”

The adjudicator felt the surrender of Mrs H’s Zurich bond was intrinsically linked to the recommendation of the Merco Bond and in his view PTFS had accepted responsibility for the advice as a whole.

He then looked at the suitability of the advice and said that Mrs H was an inexperienced investor having previously held only the Zurich investment bond.

That bond was invested in a low risk fund featuring a guarantee that its value wouldn’t fall more than 20 per cent below its highest price.

Therefore Mrs H’s only previous experience was of low risk investments and so the advisor had a responsibility to make sure the investment matched Mrs H’s risk profile.

The adjudicator felt that Mrs H should be compensated by way of a comparison with the return available from fixed rate bonds.

PTFS disagreed with the adjudicator’s view that the case fell within FOS’ jurisdiction.

It said that Mr L was neither representing nor purporting to represent FSS or PTFS in his dealings with Mrs H and there was no written advice to surrender the Zurich bond.

None of the usual documentation associated with advising on a surrender had been completed and neither FSS nor PTFS had any knowledge of Mrs H’s Zurich bond or of Mr L’s potential involvement in the Merco bond until much later, PTFS argued.

In the final decision ombudsman James Harris has upheld the complaint and argues that PTFS was responsible for the investment advice Mrs H received in 2012.

He says: “I think Mrs H would have invested differently. It is not possible to say precisely what she would have done, but I am satisfied that what I have set out is fair and reasonable given Mrs H’s circumstances and objectives when she invested.”

PTFS should pay Mrs H £300 for the trouble caused by the missale as well as the compensation.

A PTFS spokesman says: “The advice provided to the client was completed outside of the adviser’s remit, and not an investment that we as a network authorise. The complaint was subsequently upheld. The adviser no longer has authorisations to advise under Personal Touch, with these ceasing a number of years ago.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. I feel some sympathy for Personal Touch if they don’t have an agreement which means they can recover the cost from their former AR, but the FOS decision is correct in my mind simply under agency law alone.

  2. It appears to me far too much of this judgement is down to the opinion of the FOS without hard factual written evidence. Who in their right mind would believe 15% per annum was achievable and where is the evidence to support this claim? Regarding and fees paid, it appears Personal Touch received nothing which makes the decision extremely harsh for them indeed. It does however seem Mr L has some explaining to do.

    • Not that harsh on Personal Touch, given principals’ established liability for what appointed representatives do – see Ovcharenko v InvestUK Ltd [2017] EWHC 2114 (QB).

  3. This defence has been tried before and been dismissed (don’t recall if it was Personal Touch).

    A network (or any other principal)cannot dissociate itself from liability for the mis-sale of any product not on its approved panel just because the AR acted outside his remit.

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