Coutts has been ordered by the UK Financial Ombudsman Service to provide compensation for giving unsuitable advice to an individual who invested £160,000 of his self-invested personal pension in a five-year RBS Navigator investment bond in January 2012.
The ombudsman found that the investor 'hadn't fully understood the workings of the product and that, if it had been properly explained, wouldn't have taken it out' and set out how the RBS subsidiary should calculate redress.
Coutts disagreed with the ombudsman, claiming the investment was appropriate as the individual had 'wanted to de-risk and was keen on capital protection; the Navigator provided the potential for better returns than a deposit account and the client was happy to invest for at least five years; the general principle of the product is straightforward; and that the only part of the available money was put into the Navigator suggesting that the investor understood the relative merits of both it and the discretionary investment management service from where the money came'.
However, the investor asserted that 'these explanations weren't available to him at the outset' and that at the time he was provided with 'only a factsheet', according to the ombudsman. 'Even now, after much consideration, the investor finds it difficult to understand the information upon which he was expected to make a decision to invest', and that at no time was a formal risk assessment carried out before the recommendation. The ombudsman also found that Coutts 'provided misleading and inaccurate information in the various responses' to the client's complaints.
The ombudsman decided it was 'fair and reasonable' to uphold the complaint as the Coutts' adviser failed to meet two key responsibilities: making 'sure he was given an adequate explanation of what he was investing in; and to make sure any investment recommended was suitable for his needs and circumstances'.
'Whilst the general principles of the Navigator may be straightforward for the business to understand, I don't think it was for Mr W,' said the ombudsman. 'He maintains that he has difficulty understanding the various graphs, charts and terminology even now.'
That the Navigator 'simply provided a chance for growth, with no risk to capital... is an oversimplification,' said the ombudsman. 'The Navigator is a structured investment and one that Mr W hadn't historically invested in, despite the business's incorrect record that he frequently invested in structured products.
'In combination, the two investments met the overall client requirements,' said the ombudsman. 'But the product wasn't directly reflective of the stock market and relied on RBS's moving trends analysis and decisions, which I'm not persuaded Mr W understood. This may explain why he didn't query the suitability letter, because he wouldn't have been aware of these issues.'
To compensate the investor 'fairly', the ombudsman asked Coutts to compare the performance of the client's investment with that of the benchmark (the FTSE UK Private Investors Income Total Return Index - and prior to March 1, 2017, the FTSE WMA Stock Market Income total return index) and pay the difference between the 'fair value' and the 'actual value' of the investment plus interest.
The ombudsman chose this calculation because the investor wanted capital growth with a small risk to capital, and because the average rate for the fixed-rate bonds would be a fair measure for someone who wanted to achieve a reasonable return without risk to his capital.
RBS sold at least 43 structured products under the 'Navigator' tag to UK retail investors, of which two are still live, according to SRP data. All the products in the Navigator range were growth portfolio insurance-based structures wrapped in different vehicles including deposits, offshore deposits, and notes that allowed Individual Savings Account and a SIPP investments. RBS launched the dynamic products in 2009 to address issues such as asset class allocation, whether to go long or short, and how to maximise volatility or lock in potential income.
RBS had to set aside £249m in 2016 to cover compensation payments for investment advice and mis-selling of structured deposit investments within its Autopilot range to retail investors.
Click in the link to read the ombudsman's decision.
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