The High Court has dismissed an application for judicial review of a determination by the Financial Ombudsman Service. The Ombudsman had been entitled to find that, although an investment manager’s client was assessed as a medium risk investor and overall the portfolio put together for the client was medium risk, the portfolio had not been suitable for the client’s needs.


Between 2009 and 2011 the investment manager provided a model portfolio discretionary investment service to its client, Mrs King, who was recorded as an ‘average’ risk taker. Mrs King became dissatisfied with the service she received and complained first to the investment manager and then to the FOS, arguing that the portfolio of investments provided for her had been unsuitable as they were too risky. Mrs King’s complaint was upheld, but by consent it was agreed that the complaint should be considered again by a different Ombudsman.

In February 2016 FOS issued a second determination, upholding Mrs King’s complaint. The investment manager challenged the determination by judicial review.

In 2011 the then FSA, following a visit to the investment manager, had required it to commission a Skilled Persons Review. The FSA’s notice made clear that it had concerns that the investment manager’s main model portfolio was unlikely to be suitable for a significant proportion of its retail customers with balanced or medium risk appetite. A SPR was undertaken and a copy sent to the FSA. The full report was not, however, produced to the Ombudsman or the court in connection with Mrs King’s complaint. Instead, a separate report was commissioned entitled ‘Extract from Skilled Person’s Report on Suitability, Systems and Controls’. The executive summary stated that on balance the model portfolio exhibited a medium risk profile and that, although some of the investments would typically be regarded as higher risk, the average risk was still in the range considered consistent with medium risk as per industry convention during the relevant period. That report was also sent to the FSA and, in correspondence, the FSA said that it accepted the report’s findings.

FOS determination

The second Ombudsman found that the portfolio provided to Mrs King had not been suitable for her circumstances. She had not had the investment expertise to understand fully the information on the investment provided to her and she had not understood the risks inherent in the complex investments included in the portfolio. If she had understood the inherent risks, she would not have proceeded with the investment.

High Court decision

Central to the investment manager’s challenge to the determination was that Mrs King had been a medium risk investor and that overall the investment portfolio put together for her had been medium risk, as confirmed by the SPR report and accepted by the FSA. Although the Ombudsman had not been bound to accept the SPR’s and FSA’s views, if he was going to depart from them he had to explain why, which he had not done. The result was that the investment manager was faced with conflicting decisions: the FSA (now FCA) which accepted that the portfolio was medium risk, and the Ombudsman which had upheld Mrs King’s complaint.

The court found that this chain of reasoning was not sustainable. The term ‘medium risk investor’ was too vague. The Ombudsman had found that the investment manager had personally recommended the investment portfolio to Mrs King. In order to discharge its responsibilities when making a personal recommendation, the investment manager should have investigated what Mrs King’s requirements were. The Ombudsman had not disagreed with the SPR’s conclusion that overall the portfolio was medium risk but, having analysed Mrs King’s requirements, he had concluded that the portfolio was nevertheless unsuitable for her. As he had not departed from the SPR’s conclusions (which had been accepted by the FSA), it had not been necessary for the Ombudsman to explain why he differed from them.


The Decision of the High Court once again demonstrates just how difficult it can be to succeed with a judicial review of an Ombudsman’s decision. A judicial review is not a re-hearing of the merits/evidence, and, whilst an oversimplification, what you have to show is that the Ombudsman’s decision was manifestly unfair or unreasonable.

What investment managers and regulated advisers need to take away from this case is that the FOS clearly (and rightly) regards suitability as something more than establishing a client’s appetite for risk and matching that appetite with a product (or products) that have a similar risk profile. Suitability requires that you truly understand your client’s investment objectives, understand their financial experience, and understand their capacity for loss. In addition the client needs to understand what you are recommending they do and why and that means assessing and explaining the alternatives.