The Financial Ombudsman Service has ordered wealth manager Coutts & Company to pay compensation for advising a client to put £160,000 of their self-invested personal pension into an RBS Navigator investment bond.
The upheld decision concerns Mr W who complains he did not fully understand the product he invested in and was unhappy with only getting his money back with no return.
In January 2012, Mr W was advised to invest £160,000 of his Sipp into the Navigator investment. In January this year the investment closed with £160,000.
A FOS adjudicator found Mr W had not fully understood the product and that if it had been properly explained he would not have taken it out.
The adjudicator set out how the firm should calculate redress in line with one of FOS’s benchmarks.
However, Coutts disagreed with the adjudicator’s view and said the Navigator was appropriate for Mr W.
It argued Mr W had wanted to de-risk, was keen on capital protection, the Navigator provided the potential for better returns than a deposit account and Mr W was happy to invest for at least five years.
Coutts added the product was straightforward and only part of the available money was put into the Navigator suggesting Mr W understood what he was doing.
Mr W argued these explanations were not available to him at the outset, he was provided with only a factsheet at the time and still finds it difficult to understand the information upon which he was expected to invest.
Additionally, at no time was a formal risk assessment carried out before the recommendation and the business provided misleading and inaccurate information in various responses to his complaints, Mr W added.
In upholding the complaint FOS explains the business’s adviser had two key responsibilities towards Mr W where it fell short: an adequate explanation of what he was investing in and ensuring it was suitable for his circumstances.
FOS explains structured investments designed to at least return the capital invested are not without risk and the possibility of receiving a no or a very small return can be a danger.
This because of the effect of inflation on the purchasing power of the investor’s money.
Specifically on the Navigator as a product and how much Mr W understood it FOS says: “Whilst the general principles of the Navigator may be straightforward for the business to understand, I don’t think it was for Mr W. He maintains that he has difficulty understanding the various graphs, charts and terminology even now.
“I don’t entirely agree that the Navigator simply provided a chance for growth, with no risk to capital. I think this is an over simplification. The Navigator is a structured investment and one that Mr W hadn’t historically invested in, despite the business’s incorrect record that he frequently invested in structured products.”
To compensate Mr W fairly FOS explains Coutts should compare the performance of Mr W’s investment with the benchmark and pay the difference between the fair value and the actual value of the investment.
If the actual value is greater than the fair value then no compensation is payable.
Several reasons given for choosing this method of compensation are Mr W wanted capital growth with a small risk to his capital; the average rate for the fixed rate bonds would be a fair measure for someone who wanted to achieve a reasonable return without risk to his capital and Mr W has not yet used his pension plan to purchase an annuity.