There were inches and inches of evidence about the advice, strategy, risks, how we manage risk, etc, and hours and hours of meetings. Caveat emptor doesn’t apply any longer it seems.
The man had involved and in-depth knowledge having been integrally involved in the winding-up of a sizeable occupational pension scheme too. But all that doesn’t matter, sadly…
My own pension fund is invested in similar/identical assets to those of our clients through the Transact platform and comparable to those held by the complainants and indeed some of which were lambasted by the Ombudsman.
Hindsight is a wonderful thing when adjudging which investments might have been bad or ‘unsuitable’.
However, for other clients and my own account, we kept the faith and patience of our strategies. Ignoring the regulatory disclaimers or whatever, here are the bare facts.
A useful individual ‘performance’ comparative is provided by Transact on its website for this Balanced, Medium Risk strategy net of costs.
Since my own account began on 15 March 2000, £1000 has become £2134 (the previous high point was 1/7/07 at £1856).
Since the trough on 1 April 2009, £1000 has become £2690. Had these complainants maintained their strategies as the firm did its utmost to encourage they would have enjoyed not only the desired monthly income levels throughout the period but their capital would have been likely to have recovered and advanced well beyond the starting levels, despite any damage caused by the collapse of world markets.
The firm’s hand-holding endeavours during the difficult period and agreement to the complainants’ demands to conserve and build cash balances was also used against it – holding cash meant that the recovery from the low did not happen to that element of their accounts and created even more compensation for the firm as a consequence.
The FOS also adjudged that interest at 8 per cent pa gross was applied against the compensation since 2010, despite best rates elsewhere being 0.5 per cent pa or so.
The Ombudsman failed to respond to the generic challenge on this matter despite evidence of such settlements being provided, simply citing current legal practice in the outcome.
Our MP has written to the Treasury on this matter generically, for other cases’ benefit I suppose.
This gave the complainants a significant ‘profit’ over and above putting them in the position which the Ombudsman ruled and this encourages a dilatory approach for complainants and the Ombudsman in reviewing cases.
On top of this, an index for comparative was judged as appropriate despite no fees being taken into account within the index and as a consequence, a further ‘profit’ of between 1.5-2.25 per cent inclusive of VAT was enjoyed by these complainants and which would never have arisen in reality.
This point was also ignored totally by the Ombudsman. The Ombudsman has capacity to award ‘distress’ sums against an adviser if there is poor behaviour attending to the complaint. This did not arise.
In quoting the investment strategies, the firm has always believed in a very wide range of component holdings for clients – including small clients and its systems are percentage based on costs so they are not disadvantaged.
Its terms of business with clients explain this very clearly and how this means that very small exposures to more volatile holdings can also be pursued for low risk clients – £250 on a £50,000 portfolio is not high risk, for example.
These clients had copious discussions over some years before committing to any investment with the firm.
The Ombudsman also chose to compare the outcome against an indexed fund and not against cash.
This means that technically the clients were rewarded by an under-performance in their assets over the very short time they were invested and not even simply put in the place in which they would have been at inception – cash plus basic interest as was the previous standard award.
Does this open the floodgates for complaints of underperformance against a benchmark – as perhaps half of all investors achieve statistically and that is even before costs are taken into account?
The true sadness is that had they been encouraged to stay the course, they would now be very happy.
Philip J Milton is managing director of Philip J Milton & Company