A recent judgement from the Financial Ombudsman Service (FOS) has highlighted the importance of financial advisers reviewing a client’s entire portfolio on each occasion they advise them.
In a recent judgement, Perspective Financial Management Ltd has in effect been held liable for advice given to a client by a previous adviser. The client was initially advised by her first adviser, who is not named, to invest some of her pension fund into a very high risk Unregulated Collective Investment Scheme (UCIS). When she switched adviser to Chambers & Co (Chelmsford) Ltd a year later, that firm’s adviser recommended she top up her investment in the UCIS.
When the client made a complaint to Chambers, an FOS adjudicator found in her favour, as the second adviser should have considered whether the initial investment was suitable before making a recommendation to top-up. Ombudsman Lesley Stead agreed with the adjudicator’s decision when Chambers’ principal firm, Perspective Financial Management Ltd, appealed against the initial findings. As the authorised entity, Perspective will now have to compensate the client.
The FOS has ordered Perspective to pay compensation to the client based on the growth her pension fund would have achieved if half had been invested in the FTSE WMA Stock Market Income Total Return index, and the other half in a fixed-rate bond. Interest at 8% will then need to be added to this amount, and the firm will also need to pay an additional £200 for distress and inconvenience.
Ms Stead commented:
“I agree with the adjudicator, that in giving advice about the investments in 2010, the adviser should have reviewed the existing portfolio. On doing so, existing investments in the fund should have been identified as unsuitable and too high risk.
“And the adviser ought to have recommended the sale of those holdings in the fund, which was liquid at that time. The adviser didn’t do that, and instead compounded Mrs B’s position by advising that she invest more in the fund – effectively endorsing the earlier advice.”
If a client has signed up to an ongoing review service, then the adviser must ensure that they deliver the promised level of ongoing service, and at the times specified in the service agreement document. Typically, an ongoing advice service will include a review of a client’s risk profile and asset allocation on at least an annual basis.
Assessing attitude to risk is a vital part of any financial review. If it is identified that a client’s existing portfolio is too risky, then they should be advised to switch to lower risk investments.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.