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FSCS declares DFM that lost judicial review appeal in default

A discretionary fund manager that lost a High Court appeal to judicially review a Financial Ombudsman Service decision against it has now been declared in default.

Full Circle Asset Management was one of eight firms declared in default by the Financial Services Compensation Scheme in April.

In 2017 Full Circle lost an appeal against a compensation order from the FOS after claiming it did not provide personal recommendations.

The FOS decision centred on a client who invested £450,000 with Full Circle after completing an attitude to risk and loss document which recorded her as a medium-risk investor.

However, King ended up losing £90,000 in her first 15 months with the firm.

The ombudsman decided the proportion of risky investments was excessive, hedging was insufficient, the portfolio was not set up to produce the kind of income the client had asked for, and that information given to her had been too technical for her to understand.

The FOS decided the client was entitled to compensation up to the £100,000 limit for investments, and that the amount of redress should depend on the difference between performance with Full Circle and the FTSE WMA Stock Market Income Total Return Index.

The High Court later upheld the FOS’s decision against a judicial review challenge from Full Circle.

Also declared in default are Bromsgrove-based Intelligent Financial Planning, Welsh firms Strategic Wealth UK and Bright Financial Partnership.

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Comments

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  1. Julian Stevens 14th May 2018 at 9:42 am

    Notwithstanding the apparent unsuitability of the investments selected for this particular client’s portfolio, an increasing number of reports in the media indicate that “information given to [the client] had been too technical for her to understand” is a pitch increasingly used by CMC’s and accepted by the FOS. How can it be otherwise when, allowing for all the appendices and supporting documentation that have to be included these days, SR’s for something as relatively straightforward as an investment of just £20,000 into an ISA commonly run to 50 pages or more? The alternative, of course, is (for the CMC) to claim that certain key issues haven’t been discussed and explained sufficiently thoroughly or, if they have been, not in a way that any ordinary lay person could reasonably be expected to comprehend. Here, the list is long and nicely subjective, including (but not limited to) the client’s ATR, CFL, needs and objectives, compatibility with the his/her ATR of the funds recommended, costs, potentially more suitable alternatives and so on, ad infinitum. And, of course, the issue of time scale is fertile ground, as we’re seeing with the current under-performance of Neil Woodford’s funds. It will (we hope) all come good in the fullness of time ~ but how long is an acceptable period of time for the client to have to wait?

    As Cardinal Richlieu has been famously quoted: Show me six lines written by an honest man and I will find in them something with which to hang him.

    So the honest FA is between a rock and a hard place. Heads s/he loses, tails the CMC wins.

    And finally, for the FA who may have recommended a DFM, there’s the tricky issue of who is responsible for poor stock selection. Is it the DFM or the FA who recommended it?

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