Coutts’ suitability review, as revealed by Wealth Manager last week, is understood to include financial planning products, such as offshore insurance bonds, alongside its own internal funds such as Orbita and Novus.
The private bank is embarking on a review of the suitability of all investments advised by Coutts staff in the UK, held both on and offshore, including Coutts’ own investments and those managed by third parties. The review goes up to 26 November 2012, the date Coutts implemented the retail distribution review (RDR).
The inclusion of financial planning products, such as insurance bonds, corporate property bonds and maximum investment plans (MIPs), could mean there is potentially more scope for compensation payouts, according to one source who is close to the situation.
‘The emphasis for potential mis-selling is not on the investment management side, it could be on the financial planning side where they have been recommending offshore bonds and MIPs,’ said the source.
Stuart Fowler, founder and director of Fowler Drew, has taken on a number of ex-Coutts clients over the past few years. He said a theme running through their existing arrangements had been a bias towards investment bonds.
He believes this was likely to have been influenced by the large commission payments that were on offer from these products. He was also keen to add that this was not just true of Coutts and has been prevalent among other firms.
‘If the clients we have analysed are in fact representative, there appears to have been a systemic strategy of recommending investment bonds. The peg to hang that strategy on was the various forms of restrictions on pension contributions, either the lifetime or annual allowance,’ he said.
‘However, offshore bonds were likely to leave the clients in a worse tax position.’
He said this is because neither the clients nor their spouses were likely to be basic rate taxpayers or non-resident at retirement.
As the scale of compensation payments cannot yet be determined, Coutts has declined to disclose how much the bank is setting aside to cover this.
As revealed by Wealth Manager last week, Coutts chief executive Michael Morley said: ‘There have been some instances where the advice given during our previous advice process could have been better, and we are working hard to address that.’
It is expected the review will not be concluded until early 2015. If investments are found to have been unsuitable, Coutts will then send clients a compensation offer and the opportunity to exit the investment.