Rathbone Investment Management has been ordered to pay compensation after husband and wife clients accused the firm of breaking investment restrictions.
The couple, referred to as Mr and Mrs B, started using Rathbones' discretionary service in November 2009 on the advice of an independent financial adviser. Mr B, a retired financial adviser himself, and his wife each invested £125,000 in a GBP portfolio.
Exactly four years later the pair each invested £160,000 in a USD portfolio through Rathbones, which was at the heart of their complaint to the Financial Ombudsman Service. (FOS).
In February 2016 Mr B invested £50,000 in Terry Smith's Fundsmith fund, which appeared to be the trigger for their complaint against Rathbones. The fund was outside the portfolios under Rathbones' discretionary management service and Mr B used the fund's performance as a comparator.
In March 2017, Mr and Mrs B made official complaints to both their IFA and Rathbones.
'I do believe that the DFM model was, theoretically, right for us, but the execution by Rathbones has proved pretty disastrous and, in turn, has soured the DFM experience for us,' Mr B said.
He added: 'The bottom line of my complaint about Rathbones' performance is that the growth achieved has never reflected anything like either what was realistically possible in the market, or anything like Rathbone’s declared definition of its aims for our risk profile.'
The couple subsequently raised 10 issues about Rathbones with the FOS, including the fact their objective to achieve a 10% average return to match their medium risk profile was not met. They used Fundsmith's stronger return as evidence this could be achieved.
Mr and Mrs B also said that Rathbones had not followed their instruction to invest in only US stocks for their USD portfolio.
Rathbones did not uphold any of the complaints, saying returns from the portfolios were ‘… satisfactory in view of the risk taken and the restrictions placed … at the outset.’
Rathbones also disputed the US stocks only instruction. However, the FOS noted that the wealth firm appeared to have accepted a breach and offered a refund of the fees in both USD portfolios as compensations, before reverting to disputing it.
The performance complaint was rejected by the FOS, but the violation of investment restrictions was upheld.
Ombudsman Roy Kuku said that while it is not within his purview to consider disputes about performance per se, Rathbones was liable for breaching the investment restriction.
Kuku pointed out the instruction was confirmed in a letter from the company sent in November 2013, when the complainants first invested in the USD portfolios.
In his judgement on Mrs B’s case, Kuku said: ‘Rathbones was required to deliver a DFM service defined only by US stocks and, due to the US stocks it purchased, it did not.
‘The investors should be compensated for any financial loss arising from this.’
In separate letters, he said the company should compare whatever Mr and Mrs B’s USD portfolios would have made with the S&P 500 USD Total Return index and pay each of them the difference if they are found to have unperformed the benchmark.
Commenting on the rulings, a Rathbones spokesperson said: ‘We strive to do the best for every client.
‘On the rare occasion that we do not meet a client's expectations, we have an independent complaints process and ultimately if a client decides to refer the case to the ombudsman, we will respect the decision of the ombudsman.’