An advice firm has been ordered to compensate a client after she was advised to invest £31,000 in the Woodford Equity Income fund.
Mrs P was advised by Alan Steel Asset Management Limited to invest £150,000 into a collective investment account in 2013.
In October 2014, Asam advised Mrs P to switch an amount into the Woodford fund, followed by a second investment in August 2018.
In September 2018, Mrs P was advised to invest £20,000 into the fund within a new individual savings account, with the money switched from another fund into her collective investment account.
At the time of the Woodford fund’s suspension in June 2019, Mrs P had invested £30,944 into the fund, and as part of the fund's ongoing wind-up she has received £26,263, losing £4,681.
The process of winding up the fund began in January 2020 but has not yet been completed.
Mrs P complained to Asam, who responded by saying the advice they gave was suitable, given Mrs P’s risk profile and the diversification of her portfolio, however she disagreed and brough the case to the Financial Ombudsman Service.
The Fos said although the initial advice to switch into the fund in 2014 was suitable, this was not the case for the switches in 2018, due to the impact it had on the diversification and risk profile of Mrs P's portfolio.
The Fos said the switch advice given in September 2018, which saw Mrs P move £26,000 held in the Investec Catious Managed Fund into the Woodford fund, meant her portfolio had an approximately 60 per cent exposure to equities, 30 per cent to bonds and 12 per cent commodities and alternatives (figures from the Fos).
The Fos said this presented “too much exposure to risk and potential for loss” for Mrs P, who wanted to retire in 2022 and had no other outstanding liabilities other than a mortgage that was due for repayment in 2023.
Her income was £12,000 and she had no recorded savings.
“Considering her goal to retire shortly after this and that her income had reduced (presumably in light of this), I don’t think the advice was suitable for Mrs P as she didn’t have the capacity for loss that the risk of this switch brought,” ombudsman Yoni Smith said.
The ombudsman highlighted that in March 2018 the Woodford fund was reclassified from an equity income fund to a UK all companies fund, taking account of the changes in investments to a higher level of illiquid shares, and that it was not generating the income expected from an equity income fund.
Asam said they were aware of this but the reclassification was common and is not necessarily an issue, and they had planned to diversify further the following year.
The Fos said while they understand these comments, the switch and resulting portfolio balance represented more exposure to risk than Mrs P was willing to take, and they did not know why the diversification was not done immediately.
