FOS Rules St James’s Place Clients Were Given Unsuitable Investment Advice

One such complaint upheld by FOS related to advice given to a couple – Mr and Mrs H – after they approached their SJP adviser (known in the firm as a ‘partner’) about how they could mitigate any Capital Gains Tax (CGT) that may arise following the sale of a property in 2013.

Their adviser recommended the couple invest the funds from the sale – £110,000 in total – in two Enterprise Investment Scheme (EIS) portfolios. The EIS is a government venture capital initiative introduced to stimulate investment in early-stage companies and provide tax benefits to investors. Unfortunately for Mr and Mrs H, by 2021, they had lost 75% of their initial £110,000 investment and complained to SJP and their adviser about the advice, claiming that:

• They were told they were investing in a “lower risk EIS”, so they did not expect to lose as much as they did.
• They were unaware that an EIS would invest their money into companies that had yet to operate and had no track record.
• The recommended investment was unsuitable for their age, or Mr H’s health.

SJP disagreed with the complaint but offered £250 to Mr and Mrs H to cover the time taken to address the complaint. The couple disagreed with this response and took their complaint to the Financial Ombudsman Service for an independent investigation. The initial investigation found that the advice provided was suitable for Mr and Mrs H’s circumstances and that they had been given sufficient explanation about the risks involved.

Still unhappy with this decision, the couple appealed, and the complaint was escalated to an Ombudsman for a final decision. The Ombudsman reviewed the previous complaints, the paperwork relating to the investment and the couple’s attitude to risk, and the communications between Mr and Mrs H and their SJP adviser. Ultimately, the Ombudsman upheld the couple’s complaint based on several factors as follows:

• Mr and Mrs H’s income was too low to benefit from the tax relief available from investing in EIS portfolios, which also meant they were unlikely to qualify for loss relief.
• Their attitude to risk (ATR) level was decided (and increased) based on unclear, unfair, and misleading information.
• None of the paperwork clearly set out the monetary benefits of the EIS for CGT and Inheritance Tax (IHT) in detail.

The Ombudsman concluded the investigation by stating:

“I can’t imagine that Mr and Mrs H would have risked losing much or all of the £110,000, even for the IHT benefits, had they truly understood the risk involved. I’m satisfied that they didn’t have the attitude towards risk to take the level of risk involved here, and instead, I think they would have simply paid the tax.”

To compensate Mr and Mrs H fairly, SJP was told to:

• Compare the performance of Mr and Mrs H’s investment with that of the benchmark [outlined by the Ombudsman] and pay the difference between the fair value and the actual value of the investments. If the actual value is greater than the fair value, no compensation is payable.
• Add any interest set out [in the Ombudsman’s report] to the compensation payable.
• Repay the adviser’s fees together with simple interest at 8% a year from the date the fees were paid to the date of the settlement. If the above comparison shows that no compensation is payable, the difference between the actual value and the fair value can be offset against the fees with interest.
• Pay £250 for the inconvenience caused by the late reply to the complaint.

Sarah Spruce, Legal Director at TLW Solicitors, heads up our experienced Pensions and Investments Claims team, and says:

“Mr and Mrs H saw a much-diminished investment pot due to the unsuitable advice provided to them by their SJP adviser, with whom they had a longstanding relationship and implicitly trusted. Their case shows that even when your advice firm, and the initial FOS investigation does not uphold your complaint, there may still be light at the end of the tunnel. My team can help navigate these challenges and help secure compensation.”