In 2009, Mr B, a former independent financial adviser, met with his IFA and a representative from Rathbones.
He and his wife planned to spend around four to five months abroad and they did not want to be involved in the day to day active management of their assets. Their IFA advised them to use Rathbone’s Discretionary Fund Management (DFM) model service and they did so.
Rathbones had a discretionary investment management role, but Mr B opted out of its standard asset allocation model.
Mr B’s Sipp portfolio was deemed to be a medium risk profile. The initial objective was for growth, but this changed to income generation after it was reviewed in 2012.
In March 2017 Mr B and his wife complained to both his IFA and Rathbones about the poor performance of their portfolios.
Mr B said: “I do believe that the DFM model was, theoretically, right for us, but the execution by Rathbones has proved pretty disastrous and, in turn, has soured the DFM experience for us.
“The bottom line of my complaint about Rathbones performance is that the growth achieved has never reflected anything like either what was realistically possible in the market, or anything like Rathbone’s declared definition of its aims for our risk profile.”
One of the key issues raised by Mr B was that they believed Rathbone’s objective or aim was to achieve a 10% average return for their risk portfolio.
Much less was delivered, Mr B said, and comparing the Rathbone’s performance to its peers in the industry showed that it was below the benchmark for performance.
Rathbone’s disagreed with this complaint, saying there is no evidence of a 10% return ever being mentioned.
They said the Sipp portfolio’s objective was income and the overall return from the portfolios had been satisfactory in view of the medium risk profile.
Further, they said performance is a risk of investment and Mr B would have known that as former IFA.
FOS rules with Rathbone
The Ombudsman, Roy Kuku, said in its ruling that the service does not normally consider disputes about the performance of an investment, especially not in isolation.
“This complaint is about discretionary portfolio management. In this context, I can consider evidence, which may relate to performance, in order to determine whether the firm has done anything wrong in its discretionary portfolio management.
“It is important to note the limitation and distinction above. Mr B has presented competent arguments in support of his complaint. However, I am persuaded that any potential strength in his arguments relates much more to the matter of judging Rathbone’s performance – or the performance of their portfolios – in isolation, which I do not address,” Kuku said.
Overall, Kuku said he believed the crux of Mr B’s problem with Rathbone was that it was not “sufficiently aggressive” in managing his portfolios.
“That has to be distinguished from active management. His portfolio could have been actively managed, as appears to have been the case, without it having been aggressively managed and I have not seen evidence to suggest that Mr B was led to expect aggressive management – especially given his medium risk profile, which would have conflicted with the idea of aggressive (high risk) portfolio management,” he said.
Further, he said there was no evidence to suggest that Mr B had been promised returns of 10%.
“Overall and on balance, I am persuaded that Rathbone has not mismanaged Mr B’s Sipp portfolio,” Kuku said.