George Square Financial Management Ltd · DRN-5775720

The complaint Mr and Mrs B’s complaint concerns the suitability of investment advice they received from George Square Financial Management Ltd (“GSFM”). They also feel that GSFM acted unprofessionally because they were advised to encash and/or transfer their pensions. What happened The background to the complaint will be well known to both parties, so I’ll only give some brief key details here. In late 2021 Mr and Mrs B approached GSFM to obtain investment advice. At the time they were in their early 60s/mid 50s respectively and both working, earning around £26,000 each as basic rate taxpayers. They’d accumulated substantial cash savings of around £785,000, held on deposit and in cash ISAs, and they also each held a stocks and shares ISA, both invested in the same two equity funds and both valued at around £90,000. They also had occupational and private pension provision in place. Their objectives and circumstances were assessed and their attitudes to risk (ATR) determined. Mr B was categorised as at the low end of ‘moderate to adventurous’, which equated to a 7 out of 10. Mrs B’s was initially categorised as ‘adventurous’, a 9 out of 10, but that was reduced slightly to ‘moderate to adventurous’ after discussion, a risk level 8 out of 10. It was recorded that their primary investment objective was to achieve capital growth in a tax efficient manner, with a view to drawing an income in the future. For this purpose, the adviser recommended Mr and Mrs B each transfer their combined cash and stocks and shares ISA holdings of around £225,000 each to a stocks and shares ISA and place around £190,000 each into a general investment account (GIA), both invested across a portfolio of five funds consistent with their individually determined ATRs. The resulting total investment into the two ISAs and two GIAs amounted to just under £900,000, with £72,000 set aside as cash between them as an emergency fund. This was all explained to them in a suitability letter issued jointly to them in October 2021. Mr and Mrs B also agreed that GSFM would provide an ongoing advice service, so their situation and the investments were discussed on several occasions across 2022 and formally reviewed as part of the ongoing service in December 2022. It was noted then that the events of that year – the war in Ukraine, the September UK mini- budget, etc – and their impact on the markets had influenced Mr and Mrs B’s respective attitudes to risk, which had decreased. But they were nevertheless happy to remain invested as they were for the time being. However, as discussions continued into 2023, Mr and Mrs B’s concerns with falls in value of their investments increased, eventually leading to them to withdraw the investments. They then complained to GSFM in January 2024, saying that they had been unsuitably advised, voicing concerns about the adviser’s actions and adding, among other things, that he had also encouraged them to transfer their pensions.

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GSFM didn’t uphold the complaint. It felt that the recommended investments had been consistent with Mr and Mrs B’s objectives and agreed risk profiles and that the adviser couldn’t be considered at fault for poor performance of the investments as he’d had no control over the actions taken by the fund managers or the markets. GSFM said the events that occurred after the investments were made couldn’t have been predicted. And once they had occurred it was then appropriate for the adviser to have suggested that Mr and Mrs B remained invested to avoid them crystallising losses and to ensure they would be able to benefit from any subsequent market upturn. In short, it said Mr and Mrs B had been experienced investors who were fully aware that the markets could fall and rise and that there was no guarantee regarding performance. The complaint was referred to this service and considered by an investigator. Contrary to GSFM’s position, she felt the complaint should be upheld. This was primarily on the basis that the level of risk involved in the recommendations was too high and that Mr and Mrs B didn’t have experience of investing so much money in funds that were so heavily reliant upon equity performance. In saying this, she noted the lower level of risk involved with the funds they’d previous invested in. The investigator also added that she felt that the subsequent lowering of Mr and Mrs B’s attitudes to risk in 2022 should’ve prompted the adviser to suggest changes to the investments to lower the risk involved. As the investigator found the advice to have been unsuitable, she recommended that GSFM compensate Mr and Mrs B by way of a comparison of the performance of the investments with a lower risk benchmark. Mr and Mrs B accepted the investigator’s view, but GSFM didn’t. It said, in summary – • Mr and Mrs B had previously been comfortable investing in stocks and shares and had done so at a risk level effectively equating to 5.7/10. • They had significant cash funds and were in a financial position to absorb losses, so had decided to invest over a 3 to 5-year period to produce better returns. • They had detailed discussions with the adviser and their ATRs were properly assessed at 7/10 and 9/10 (reduced to 8/10) – giving a mean level of 7.5/10, following which they were advised to invest in portfolios with an overall risk rating of 7.4/10. • Following a period of unprecedented volatility – entirely unrelated to the level of portfolio risk – about which they were understandably concerned the adviser gave them sensible advice to reman invested. But, having initially accepted this advice, they ignored it and cashed in their investments after only two years, crystallising losses and failing to benefit from the market recovery, which history has shown will always happen and the adviser indicated would be the case. • Any losses suffered by Mr and Mrs B could not be regarded as the responsibility and liability of the adviser. They were the result of the actions of Mr and Mrs B. • The investigator had ignored these circumstances. She confused volatility with risk, failed to appreciate that the recommended investments were actually less volatile in very difficult markets, and misinterpreted the risk level of the previous investments held by Mr and Mrs B. • She also suggested that advice that customers invest in a higher risk portfolio is inherently unsuitable, because of the lack of familiarity with investing at a higher level of risk. • The complaint therefore shouldn’t be upheld as GSFM clearly had a thorough understanding of Mr and Mrs B’s situation, gave suitable advice in accordance with their aims and objectives (including advice not to encash the investments and crystallise losses) and always acted reasonably.

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The investigator wasn’t persuaded to change her opinion, so the matter was referred to me to review. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I’ve come to the same conclusions as those reached by the investigator and I’ll explain my reasons for doing so below. I want to assure both parties, and their representatives, that I’ve read and considered everything on the file. But that said, I’m satisfied I don’t need to comment on every point raised to reach what I consider to be a fair and reasonable decision. Where I’ve chosen not to comment on something, it’s not because I haven’t considered it. It’s because I’ve focused on what I think are the key issues. That approach is in line with the rules under which we operate. Further, where the evidence is incomplete or inconclusive, I’ve reached my decision based on the balance of probabilities. That is, what I think is more likely than not to have happened in light of the available evidence and a consideration of the wider circumstances. Firstly, for completeness I’ll address the issue of pension advice, as Mr and Mrs B reiterated their concerns about this following receipt of the investigator’s view. While it appears there was some interaction with the adviser regarding their pensions and information sought in that respect, I’ve seen nothing that persuades me this was for anything other than general information gathering purposes. I’ve seen no evidence that any advice was given regarding the pensions and that any changes, transfers or other actions took place. As such, I’m satisfied that GSFM didn’t act incorrectly in respect of Mr and Mrs B’s pensions. Turning then to the issue at the heart of the complaint, the investment advice provided to Mr and Mrs B, as noted, I don’t think it was suitable. While I accept that a reasonably robust assessment of their circumstances and attitudes to risk was carried out by the adviser, I find I’m unable to conclude that the way in which they ended up invested was consistent with those circumstances. At the time of the advice Mr and Mrs B were both still working and looked likely to continue to do so for the next five to ten years respectively, at which point they were to be in receipt of a reasonable level of pension income in retirement. They had significant monies held on deposit and given the low deposit rates available around the time in question it seems reasonable that they sought to invest more money and were advised to do so. A series of meeting took place with the adviser and clearly there was discussion about what Mr and Mrs B wanted to achieve and the risks involved in doing so. Questionnaires regarding attitude to risk were completed by both Mr and Mrs B and the scores generated informed the risk ratings. Mr B was at the bottom of the range for ‘low end of moderate to adventurous’, a 7 on the scale of 1 – 10, Mrs B was in the middle of the range for ‘Adventurous’, a 9 on the same scale. I appreciate that Mrs B’s rating was reduced slightly after some discussion, but only to ‘moderate to adventurous’, an 8 on the 1 – 10 scale. But nevertheless, this was still above Mr B’s rating, and it was he who it was noted in the suitability letter as being the one with investment experience. Mrs B was recorded as having some understanding of investments, but that was because Mr B had managed to build up their wealth by investing in stocks and shares investments in the past. And as far as I can see, the investment experience at the point of the advice was simply

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Mr B and Mrs B both holding a stocks and shares ISA, both invested in the same way – two funds from the same provider, one a 20% equity fund, the other a 40% equity. Both ISAs were valued at around £90,000. These funds were both risk-rated as a 4 on a scale of 1 - 7. I’ve noted what GSFM’s representatives have said about making comparisons of risk ratings across two different scales. But if it’s assumed that a 4 on a scale of 1 – 7 equated to a 5.7 on a scale of 1 -10, this still meant, simply speaking, that Mr and Mrs B moved from a position of investing a combined £180,000 at a risk rating of 5.7 to investing around £900,000 at a risk rating averaging between them of 7.5. I appreciate what’s been said about the fact that investors shouldn’t be prevented from increasing their level of risk as they gain experience, and also that there was clearly some capacity, and tolerance, for loss given Mr and Mrs B’s circumstances. But I nevertheless struggle to see how the overall recommendation could be considered suitable for Mr and Mrs B when looked at holistically; why it wasn’t considered to be too great a step up in risk, very much amplified by the size of the investment. The previous funds had a combined equity reliance of only 30%. Following the advice, Mr B’s reliance on equities increased to around 77% and Mrs B’s even more, to around 89%. And this leads me on to GSFM’s concerns about Mr and Mrs B having actively created their losses by exiting the investments when their ‘red line’ – the level of loss they were prepared to accept – was reached. That they acted contrary to reasonable advice to weather the storm and wait for markets to rally, as they subsequently did. While I’ve noted the concerns, I think it’s reasonable to conclude that Mr and Mrs B’s decision was a direct consequence of being unsuitably advised in the first place. The excessive exposure to risk for such a large proportion of their money, inconsistent with their circumstances, created a situation where matters went beyond what was acceptable given their knowledge and experience. While the specific events of 2022 of course couldn’t have been predicted, I think the potential for a significant level of loss when looking at £900,000 invested with combined reliance on equities of over 80% could reasonably have been predicted. Had a more measured approach been taken, one that recognised Mr B’s relatively limited experience and moderate ATR along with Mrs B’s documented lack of experience and previous reliance on Mr B (which casts significant question over the reasonableness of categorising her as a ‘moderate to adventurous’ investor), then I think it’s likely, on balance, that Mr and Mrs B would’ve remained invested. For clarity, in reaching my decision I’m not taking account their reduced ATRs, determined at the point of the annual review in December 2022. It is not surprising that their attitudes had changed by the end of 2022. But I’ve looked solely at what happened in 2021 and the way in which they were advised then, not with hindsight. Putting things right Fair compensation In assessing what would be fair compensation, I consider that my aim should be to put Mr and Mrs B as close to the position they would probably now be in if they had not been given unsuitable advice. I take the view that Mr and Mrs B would have invested differently. It is not possible to say precisely what they would have done differently. But I am satisfied that what I have set out

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below is fair and reasonable given Mr and Mrs B's circumstances and objectives when they invested. What must GSFM do? To compensate Mr and Mrs B fairly, GSFM must: • Compare the performance of Mr and Mrs B's investments with that of the benchmark shown below and pay the difference between the fair value and the actual value of the investments. If the actual value is greater than the fair value, no compensation is payable. • GSFM should also add any interest set out below to the compensation payable. Income tax may be payable on any interest awarded. Portfolio name Status Benchmark From ("start date") To ("end date") Additional interest GIA and ISA investments No longer in force FTSE UK Private Investors Income Total Return Index Date of investment Date ceased to be held Pay 8% simple interest per year on any loss from the end date to the date of settlement. Actual value This means the actual amount paid from the investment at the end date. Fair value This is what the investment would have been worth at the end date had it produced a return using the benchmark. GSFM must pay the compensation within 28 calendar days of the date on which we tell it Mr and Mrs B accept my final decision. If GSFM fails to pay the compensation by this date, it should pay 8% simple interest per year on the loss, for the period following the deadline to the date of settlement. Why is this remedy suitable? I have decided on this method of compensation because: • Mr and Mrs B wanted capital growth and were willing to accept some investment risk. • The FTSE UK Private Investors Income Total Return index is a mix of diversified indices representing different asset classes, mainly UK equities and government bonds. It would be a fair measure for someone who was prepared to take some risk to get a higher return. • Although it is called income index, the mix and diversification provided within the index is close enough to allow me to use it as a reasonable measure of comparison

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given Mr and Mrs B's circumstances and risk attitudes. My final decision For the reasons given, my final decision is that I uphold the complaint and direct George Square Financial Management Ltd to compensate Mr and Mrs B as set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr B and Mrs B to accept or reject my decision before 30 April 2026. James Harris Ombudsman

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