The High Court has upheld a decision by the Financial Ombudsman Service (FOS) about unsuitable investment advice. This follows the Ombudsman’s decision in favour of an investor who complained about the service she received from Full Circle Asset Management Ltd.

Full Circle provided a model discretionary portfolio investment service to Mrs King, who made complaints to Full Circle and then to the FOS on the grounds that the company had given her unsuitable investment advice. Mrs King claimed that the portfolio was more risky than her medium attitude to risk and as a result this caused her to lose around £90,000.

In its defence, Full Circle presented an independent assessment of the model portfolio it provided to Mrs King. The assessment concluded that the portfolio was medium risk and the outcome was accepted by the Financial Conduct Authority (FCA). However, the Ombudsman upheld Mrs King’s complaint, claiming that Full Circle had given a personal recommendation and the portfolio recommended was unsuitable for a retired woman in her 60s as it required an income of £1,200 a month.

Full Circle applied for judicial review of the Ombudsman’s decision on the basis that he had a duty to explain his reasons for departing from the standard approved by the FCA. Despite this, the judge upheld the decision and dismissed the review application. The judge said the Ombudsman was entitled to make his own findings on the issues and that Full Circle had a responsibility to fully investigate Mrs King’s circumstances rather than simply determining that she was a “medium-risk investor”.

The judge did not accept that there was a conflict between the Ombudsman’s decision and the regulatory standards of the FCA. He also rejected the “failure to give reasons” argument was a proper characteristic of the dispute and dismissed the idea that the decision was unfair or breached human rights.

Paula Steele, managing partner at John Lamb Financial Planning, says: “This case highlights some of the difficulties found when dealing with the FOS. The Court did not seem to take into account that the Ombudsman had not given detailed reasons for departing from FCA regulations. This departure may be of concern to advisers due to the importance of risk rating.”