Upheld: Investment mis-selling complaint against Philip J Milton & Company Plc
Financial Ombudsman decision DRN-0445269 of 2013-11-27T00:00:00+00:00. Investment mis-selling complaint against Philip J Milton & Company Plc. Outcome: Upheld.
Decision detail
| Reference | DRN-0445269 |
|---|---|
| Decision date | 2013-11-27T00:00:00+00:00 |
| Firm | Philip J Milton & Company Plc |
| Product | Investment |
| Claim type | Investment mis-selling |
| Outcome | Upheld |
| Remedy | Philip J Milton & Company Plc must pay fair compensation calculated as follows: (1) compare the actual performance of Mr and Mrs A's investment with the FTSE APCIMS Stock Market Income Total Return Index over the same period; (2) if there is a loss, pay the difference between fair value (what the investment would have been worth if it had performed in line with the APCIMS index) and actual value (amount received at transfer date); (3) add any additional sums paid in from the point paid; (4) deduct any withdrawals or income payments at the point actually paid; (5) add simple interest at 8% per annum from the date of transfer to the date of settlement on any compensation payable. Income tax may be payable on the interest. |
Summary
Mr and Mrs A complained that investment advice from Philip J Milton & Company Plc to invest in a stock market portfolio was unsuitable. Although the firm correctly identified them as medium risk investors, the portfolio actually constructed deviated significantly from what was presented. The December 2006 illustration showed 33% in fixed interest securities with explicit discussion of their stabilising benefits, but the actual October 2007 portfolio contained only approximately 5% fixed income (mostly high yield bonds) and approximately 20% in higher risk smaller companies and AIM stocks. The ombudsman upheld the complaint, finding the portfolio inconsistent with medium risk industry standards (typically 70% equities, 30% bonds) and unsuitable for Mr and Mrs A. The firm was ordered to pay compensation based on the difference between actual performance and the FTSE APCIMS Stock Market Income Total Return Index, plus 8% annual interest from transfer date to settlement.
The Ombudsman's reasoning
The ombudsman concluded the portfolio was unsuitable for two reasons: (1) although Mr and Mrs A's medium risk classification was informed and reasonable given their financial capacity, the actual portfolio constructed did not match a medium risk profile; (2) the portfolio contained excessive exposure to higher risk elements (approximately 20% in smaller companies, AIM stocks, and specialist trusts) and insufficient exposure to lower risk fixed interest securities (only approximately 5% in fixed income, mostly high yield bonds rather than investment grade bonds). The firm's own December 2006 illustration and letter had explicitly presented a medium risk portfolio with 33% fixed interest and discussed its stabilising benefits, but the actual implementation deviated materially from this. Generally accepted investment conventions classify AIM stocks and smaller companies as higher risk, and the firm's arguments that diversification mitigates risk and that AIM stocks are not necessarily higher risk were rejected. The ombudsman rejected the firm's argument that Mr and Mrs A should not be compensated for selling an unsuitable portfolio, finding it unreasonable to lock investors into unsuitable investments.
How this compares
| Group | Decisions | Uphold rate |
|---|---|---|
| Philip J Milton & Company Plc, all decisions | 4 | 50% |
| Investment mis-selling, all decisions | 14,206 | 37% |
| Investment, all decisions | 13,970 | 35% |
Source
Read the original decision on the Financial Ombudsman Service website