I invested in an offshore share portfolio through a small family-owned Category II wealth manager business a few years ago. When the business was concluded and the suitability of the share portfolio discussed, it was confirmed that my time horizon was very long and my goal was to have a long-term low-cost equity portfolio. (The annual management fee is 1.15%.)
They sold most of the shares in my portfolio after the pandemic started and moved the proceeds to one of their own funds where the equity exposure is 50%, with the total annual cost is in the region of 3%, without consulting me. A big gain was realised. I would never have agreed to invest in a small, high-cost balanced fund had they consulted me.
When I complained they said:
- They are proud of the fact that a gain was realised because it shows there has been a profit and that they did a good job;
- They did not need to consult with me because I signed a mandate; and
- They only manage for investment returns and they never take tax into account.
I was under the impression that Category II wealth managers are held to a higher standard. I’m extremely disappointed that the FSCA has not curbed these conflicted practices. They didn’t act in my best interest and used my hard-earned savings as seed capital for their expensive fund. I’ve warned my family and friends to never sign a Category II mandate.
Who would be able to assist me to place a value on the damage they have done, i.e. adverse tax implications and higher fees (I didn’t share in the recovery of the market, etc)? Would it even be worth my while to send a complaint to the FSCA?
Thank you for posting such an interesting and valid question.
Without seeing the specific wording of the discretionary mandate you have signed it is quite challenging to provide you with specific advice on how your complaint should be addressed.
However, in general, if I was in your position I would manage the resolution of the complaint in the following manner:
1. Approach a skilled independent wealth manager from another FSP to whom you would provide a Letter of Authority (LOA) to gather information on the history of your investment accounts with your current family-owned Category II wealth manager.
An LOA is a letter of consent that would allow the independent wealth manager to gather information on your existing investments but cannot amend any aspect of the existing investments in any way.
You would request the wealth manager you have approached to compile an analysis on your investment accounts to determine the damage from a tax implication and higher fees and make the performance comparisons between the share portfolio you had and the funds you are now invested in. You may need to pay a fee for this service to keep the analysis completely independent.
You may also need to keep in mind that in the share portfolio you previously had if you traded shares at any time there would have been capital gains tax implications. There is also a school of thought that says rather pay the CGT on gains now when its lower than on the future when it might be greater.
2. Once you have the analysis then I would suggest you approach a licensed Fais compliance officer (a list can be obtained from the FSCA) and engage with a compliance officer by showing them the discretionary mandate you signed and the analysis compiled in (1).
This is to determine whether your wealth manager (a) provided you with an approved mandate (discretionary mandates have to be approved by the FSCA before being provided to investors to sign by a Category II licensed FSP), (b) the wealth manager did not abide by the terms provided in the mandate.
3. Once you have the report from the compliance officer and the analysis done independently in (1) then you are able to determine what your damages, are. Then you should enquire from your wealth manager who their complaints officer is and who their compliance officer is and then present in writing your findings. In this way, your wealth manager’s complaints officer is then required to respond to you and to address your complaint in writing.
4. If the response from your wealth manager’s complaints officer is not satisfactory then you can file a complaint with the Fais Ombudsman at the FSCA.
For the benefit of other Moneyweb readers, I think I should begin by explaining the basic difference between a Category I and Category II Financial Services Provider’s (FSP_ Licence as issued by the Financial Services Conduct Authority (FSCA).
A Category I FSP licence is basically an advice and intermediary services only based licence issued to those entities by the FSCA. The Category I FSP cannot act on a discretionary mandate.
A Category II FSP licence is issued by the FSP to a “Discretionary FSP” where that FSP renders intermediary services of a discretionary nature.
A discretionary mandate is an agreement between the FSP and the investor/client where the investor provides permission to the FSP to act on their behalf to manage (in this case) their portfolio without the FSP informing the investor of changes for every amendment to the portfolio. There are certain stipulations within the mandate that need to be declared on the mandate such as:
- The investment objectives of the client;
- A general statement pertaining to the risk profile associated with the portfolio to be managed, in particular, where there may be a currency risk; and
- The fees/commissions earned by the FSP for the service provided to the investor and how this is paid to the FSP.
I hope this response assists you in resolving your query with your existing wealth manager.