Upheld: Investment mis-selling complaint against KW Wealth Planning Limited
Financial Ombudsman decision DRN-4428467 of 2023-11-14T00:00:00+00:00. Investment mis-selling complaint against KW Wealth Planning Limited. Outcome: Upheld.
Decision detail
| Reference | DRN-4428467 |
|---|---|
| Decision date | 2023-11-14T00:00:00+00:00 |
| Firm | KW Wealth Planning Limited |
| Product | Investment |
| Claim type | Investment mis-selling |
| Outcome | Upheld |
| Remedy | KWPL must compare the performance of Mrs S's portfolio against the FTSE UK Private Investors Income Total Return Index (or FTSE WMA Stock Market Income Total Return Index prior to 1 March 2017) from the date of investment to the date the portfolio ceased to be held. KWPL must pay the difference between the fair value (what the portfolio would have been worth using the benchmark return) and the actual value. If actual value exceeds fair value, no compensation is payable. KWPL must add 8% simple interest per year on any loss from the end date to settlement date. KWPL must take ownership of the illiquid TCA UCIS and assume its value is £0 for calculation purposes, or obtain an undertaking that any future payments from the fund will be repaid to KWPL. Compensation is capped at £160,000 with a recommendation for any excess to be paid. Income tax may be payable on interest awarded. |
Summary
The estate of Mrs S complained that KWPL unsuitably managed her discretionary investment portfolio by investing approximately 25-27.66% in two unregulated collective investments (Prestige Alternative Finance and TCA Global Credit Master Fund) between 2014 and 2018. Mrs S had a documented medium-low risk profile, stated she would not accept losses of 20%, and sought steady, predictable returns to preserve capital against inflation. KWPL classified these high-risk, illiquid UCIS as 'lower risk' components of the portfolio. When TCA entered liquidation due to fraud in 2021, the estate complained that the investments were unsuitable. The ombudsman upheld the complaint, finding that whilst UCIS were not inherently unsuitable for Mrs S, the proportion invested made the overall portfolio unsuitable because it resulted in approximately 70-75% equity exposure, far exceeding her stated risk tolerance. The ombudsman ordered KWPL to compensate the estate by comparing portfolio performance against the FTSE UK Private Investors Income Total Return Index, with compensation capped at £160,000 plus interest.
The Ombudsman's reasoning
The ombudsman concluded that whilst UCIS investments were not inherently unsuitable for Mrs S as a high net worth investor with some investment experience, the proportion of her portfolio invested in them (approximately 25-27.66%) made the overall portfolio unsuitable. The key issue was that KWPL classified these high-risk, unregulated investments as 'lower risk' components, which was inconsistent with FCA guidance that UCIS are high-risk investments not suitable for most consumers. The fact that removing these UCIS would result in 70-75% equity exposure demonstrated the portfolio was carrying significantly more risk than Mrs S's stated medium-low risk tolerance and her stated discomfort with losses of 20%. The ombudsman rejected KWPL's arguments that: (1) the losses were unforeseeable fraud; (2) the investments should be viewed only in the context of overall portfolio performance; (3) Mrs S's income surplus reduced the effective concentration; or (4) the POAs should have acted sooner. The ombudsman found KWPL failed to ensure the portfolio remained aligned with Mrs S's objectives and attitude to risk, breaching COBS 9 suitability requirements.
How this compares
| Group | Decisions | Uphold rate |
|---|---|---|
| KW Wealth Planning Limited, all decisions | 5 | 50% |
| Investment mis-selling, all decisions | 14,206 | 37% |
| Investment, all decisions | 14,114 | 34% |
Source
Read the original decision on the Financial Ombudsman Service website