Not upheld: Investment mis-selling complaint against Fairstone Financial Management Limited

Decision detail

Summary

Mr C, a 75-year-old retired investor with substantial assets exceeding £1m, transferred £534,934 to Fairstone in November 2021 for advisory management. Fairstone established his risk profile as Risk Level 6 (Balanced Growth) with a 20% capacity for loss and invested the funds across seven funds including sustainable investments. After approximately 16 months, Mr C complained that the portfolio had fallen significantly in value and was too high-risk for his profile. The investigator upheld the complaint, finding the portfolio had excessive US equity exposure (31.32% vs 22% prescribed) and derivative exposure inconsistent with Risk Profile 6. However, the ombudsman disagreed, finding that Mr C's risk profile was appropriately established based on his questionnaire responses and circumstances, that some flexibility in asset allocation is normal, and that short-term market volatility does not evidence unsuitable advice. The ombudsman did not uphold the complaint.

The Ombudsman's reasoning

The ombudsman found that Mr C's risk profile of 6 (Balanced Growth) was appropriately established based on his questionnaire responses, which showed he was not cautious, was comfortable with stock market investments, understood investment matters, and was seeking long-term capital growth. The ombudsman concluded that while the portfolio's asset allocation differed from the typical Risk Profile 6 allocation, this was not unusual and some flexibility in asset allocation is expected. The ombudsman rejected the investigator's concerns about US equity exposure and derivative use, noting that US equities are not inherently high-risk compared to UK equivalents and that derivatives used for hedging are appropriate within managed funds. The ombudsman found that Mr C had sufficient investment experience, substantial assets outside the portfolio, and a long-term investment horizon, making the advice suitable. The ombudsman noted that short-term market volatility and poor performance alone do not evidence unsuitable advice.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website