The High Court has ordered Zurich to pay £223,000 in damages to a woman who was given inheritance tax advice by one of its appointed representatives.
According to the judgment, the claimant, Angela Lenderink-Woods, was introduced to Allied Dunbar financial planning consultant Huw Davies by one of her daughters in 2001, when she was 80 years old.
Lenderink-Woods was born in the UK and acquired a domicile of dependency in the Netherlands following her marriage in 1944. Since 1980 she has lived in Costa Rica.
She had an investment portfolio that was inherited from her mother in 1996 that was managed by National Westminster Bank. By 2001, the portfolio was worth £567,700 and, because it was based in the UK, was potentially subject to inheritance tax.
Davies was a tied adviser and, on his advice, Lenderink-Woods moved her portfolio into three Allied Dunbar products: a gift and loan trust scheme, an offshore investment bond, and a portfolio bond, whose assets were managed by a discretionary fund manager.
Lenderink-Woods argued that the Allied Dunbar products were not suitable for someone not domiciled in the UK. She said the charging structure was “unnecessarily burdensome” and that despite Davies saying a 2 per cent charge would apply, once commission, Allied Dunbar’s charges, and the DFM’s charges were taken into account, it was much higher.
In 2011, Lenderink-Woods’s daughters also became concerned about Allied Dunbar’s charges. Zurich later admitted that the charges under the bonds were about 4.5 per cent the first year and then at least 2.3 per cent each year over a 10-year period.
Justice Norris said Davies acted negligently in giving Lenderink-Woods advice. The judgment, handed down on 19 December, overturns a 2014 Financial Ombudsman Service decision that found in Zurich’s favour.
Norris says: “The retainer was limited in two ways. First, Mr Davies was not undertaking a general survey of Mrs Lenderink-Woods’ financial affairs: his advice was centred upon investing present capital for income and growth, and reducing inheritance tax (with some advice about off-shore banking).
“Second, Mr Davies was a tied adviser: if a reasonably competent financial adviser placed as Mr Davies was placed had felt either that he lacked the skill and competence to present all available alternatives or that the products available to him did not accord with what was best for Mrs Lenderink-Woods then he would fulfil the retainer by telling Mrs Lenderink-Woods to take advice from an independent financial adviser.”
Norris adds: “Mr Davies fell well short of a competent discharge of this retainer. The expert evidence establishes that a competent adviser knows that domicile is a critical issue in tax planning and ought either to know the rules or seek advice as to the rules (or tell the client to do so).
“Every word Mr Davies wrote or uttered on the subject demonstrated that he did not know the rules and was completely out of his depth. His unaccountable false statement to his supervisors that Mrs Lenderink-Woods had taken independent tax advice prevented her from being advised to obtain a second opinion. The serious management lapse of his supervisors, in requiring confirmation from Mrs Lenderink-Woods that she had received independent tax advice but then accepting the word of Mr Davies on the subject, compounded the problem.”
A Zurich spokesman says: “Zurich notes the judgment delivered by the Manchester High Court. The events which formed the subject of the claim took place nearly 16 years ago, and Zurich ceased operating a network of advisers over 10 years ago. Zurich accepts the ruling and will comply with it.”
The damages award was reached by calculating the impact on the fund value to July 2016 of the “unnecessary charges” that were imposed through Davies’ scheme.