The ruling by a Manchester high court relates to advice given by Allied Dunbar adviser Huw Davies to Angela Lenderink-Woods.
In 2001, 80-year-old Lenderink-Woods approached Davies about an investment portfolio worth £567,000 which had a potential IHT liability.
After getting married to a Dutchman in 1994, Lendernik-Woods spent most of her life living in Holland before moving to Costa Rica in 1980.
She went to Davies, her daughter’s lodger, for advice on how to reduce the IHT burden for her four children.
Davies, at the time, failed to make clear that he was a tied adviser and could only recommend a certain range of Allied Dunbar products.
Consequently, he recommended that Lendernik-Woods transfer her investments into a gift and loan trust scheme, an offshore investment bond and a personal portfolio bond, where the assets within it were managed by a discretionary fund manager.
In her testimony against Davies, Lenderink-Woods said that these products were unsuitable for someone who was not domiciled in the United Kingdom.
The judge found in her favour, slamming Davies’ advice to transfer the portfolio into a single asset class in the form of the trust, and the fact this involved “unnecessary and duplicative cost”.
As a result, he ordered Zurich, who owned advice network Allied Dunbar until 2006, to pay £223,000 as compensation for the impact on the value of the fund to July 2016.
Exorbitant fees
Justice Norris, the judge presiding over the case, also found Davies guilty of breaching the Allied Dunbar sales process, by failing to make clear to Lenderink-Woods how much she would be charged.
Describing the charging structure as “unnecessarily burdensome”, she claimed that she was told by Davies that it would be 2%.
In reality, charges for the bonds actually came to 4.5% for the first year and at least 2.3% per annum over a ten-year period.
This included a 0.5% annual fee collected by Davies, a 1.5% admin charge for the offshore investment bond, a 2% charge to set up the personal portfolio bond, which then cost 1% for the next four years.
The judge ruled that for the amount invested, around £500,000, the wealth management fee should have been no more than 1%.
