Restricted advice group St James’s Place (SJP) has been ordered by the Financial Ombudsman Service (FOS) to pay compensation to a client with Alzheimer’s for unsuitable advice on an ISA transfer.
The adjudicator ruled that the general strengths of SJP’s investment process were not enough to prove a 'tangible benefit’ to the client in the absence of a more specific analysis of his situation.
The complaint was brought by a woman with power of attorney for the client, who was called Mr G in the final decision. She claimed an SJP appointed representative's advice to transfer two ISAs was unsuitable because the firm was unable to provide evidence that holding investments with SJP would yield better value for the client than keeping the investments where they were.
A provisional decision issued by the FOS last October found in favour of the client.
SJP contested this, and set out why its approach to investment management would be beneficial to the client. SJP cited seven reasons:
- control of the investment mandate;
- access to data about the funds it managed;
- flexibility to replace a manager at short notice;
- members of the investment committee are selected for particular expertise;
- the investment committee contains independent experts not directly employed by SJP;
- SJP employs a behavioural psychologist to sit in on manager monitoring meetings, who tells the committee when a manager shows ‘unusual behaviour traits’ to certain areas of questioning;
- SJP has an exclusive relationship with an independent investment consultancy firm and several fund managers.
SJP also argued that although charges were higher after transferring to its ISAs, the focus should be on 'value for money'. According to SJP, this justified the transfer as the funds would deliver 'above average returns' net of fees.
However, ombudsman Doug Mansell said the advantages highlighted by SJP did not show the client was better off transferring.
‘It remains unclear whether Mr G would be better off in real terms as a result of transferring,' he said.
He said the suitability letter did not include detail on why investing with SJP was a better option than not transferring.
‘The SJP investments involved a higher level of charges than Mr G’s existing funds. SJP acknowledges this point, but argues this should be considered in the context of value for money. It’s not clear to me how the new investments offered better value for money than the existing funds,' Mansell said.
‘As the charges would be higher, investment performance would have to be that much better than the existing funds simply to overcome this deficit.'
Mansell said he had not seen evidence of any comparison between the performance of the investments involved meaning Mr G was not able to make an 'informed choice' on transferring.
The FOS also said it would have been 'prudent' to discuss the transfer with the person who had power of attorney, called Mrs Y in the complaint, even though this status was not confirmed until four months after the advice was given. There was no evidence the adviser took this course.
SJP has been ordered to compare the surrender value of its investment with that of the two investments Mr G transferred in 2015, assuming the investments were still in force. If the current value is lower, SJP will pay Mr G the difference.
The FOS also ordered SJP to reimburse the cost of any financial advice Mrs Y receives, up to £300, if she wishes to transfer the investment elsewhere, and to pay £250 to Mrs Y in recognition of the trouble and upset it caused by the way it dealt with the initial complaint.
New Model Adviser® understands that the claim has yet to be settled, as the client has not yet accepted the FOS decision, but the rate of return on the SJP investment since the transfer is 14.3% net of charges.
Tony Dunk, SJP director of investor relations, said: 'We regret any matter referred to FOS and always consider whether there are learning points that arise from FOS decisions.
'Each year SJP writes to all clients with the details of their investments and seeks their feedback. The latest client survey showed 99% of clients who responded (over 10,000 so far) believe SJP offers reasonable, good or excellent value for money, with 82% in the higher categories.
'Further, 97% told us that they would refer SJP to someone else, with 58% having already done so.'
Read the full decision here.