DRN-5922815

The complaint Mrs T has complained HSBC Bank UK plc (‘HSBC’) failed to comply with the Financial Conduct Authority’s (‘FCA’) rules which resulted in her having an unsuitable investment portfolio. Mrs T brought her complaint jointly with her husband, Mr T, but their complaints are being dealt with separately as the funds were transferred into ISAs. However, the overall risk profile and investment objectives were joint. So, I will be referring to Mr and Mrs T in this decision where relevant. What happened Mrs T and Mr T invested into HSBC’s Premier Investment Management Service (‘PIMS’) in 2015. The goal was for capital growth and the option of receiving an income in the future. Mr and Mrs T met with HSBC’s Wealth Manager (‘WM’) who advised on the most suitable model portfolio which in turn was managed by the Discretionary Investment Manager (‘DIM’) who needed to ensure the model portfolio matched its risk profile and investment objectives. Mr and Mrs T invested in the lower risk PIMS model Income Portfolio. Mr and Mrs T weren’t satisfied with the growth of their investment and in 2024 raised a complaint further to HSBC’s annual review letter. HSBC didn’t uphold Mr and Mrs T’s complaint. It said; • The PIMS portfolio met Mr and Mrs T’s low-risk income requirements • The annual review letter accurately outlined the outcome of the meeting. • Annual reviews weren’t an advisory meeting but to ensure the portfolio remained suitable. • PIMS was a discretionary managed service with model-based investments and wasn’t bespoke. • While Mr and Mrs T may have been disappointed with the performance and income there was no evidence HSBC had done anything wrong. Dissatisfied with the outcome, Mr and Mrs T brought their complaint to the Financial Ombudsman Service. Our investigator who considered the complaint didn’t think HSBC needed to do anything more; • He thought the advice to invest was suitable; • those involved with giving the advice and making discretionary decisions were sufficiently qualified and; • he couldn’t agree HSBC hadn’t complied with the FCA’s rules and regulations. Mr and Mrs T didn’t agree. They said that the investigator hadn’t addressed their complaint point about the discretionary investment management of their investments and there was no evidence HSBC had complied with the FCA rules.

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As the complaint couldn’t be resolved, it has been passed to me for a decision in my role as ombudsman. Mr and Mrs T confirmed their specific complaint points were; • The DIM failed to make suitable investments; • failed to provide period statements explaining the investments’ suitability and; • failed to exercise discretion regarding the portfolio composition. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. After doing so, I’ve reached the same conclusion as the investigator and broadly for the same reasons. I’ll explain why. Mr and Mrs T have raised many complaint points about the rules and regulations they consider HSBC breached. I acknowledge Mr and Mrs T’s request that I respond to the points they have raised and I would like to assure them I have read, and carefully considered, all the submissions they have made. However, my role is to consider what in my view are the key issues of the complaint and independently reach a view on what is fair and reasonable in the circumstances. The purpose of this decision is to set out what that view is, and my reasons for reaching it; not to present a point-by-point response to everything the parties have submitted. We are an informal dispute resolution service and operate on an inquisitorial, not adversarial basis. Mr and Mrs T has asked that I quote their complaint in my published decision as being; ‘We believe the discretionary investment managers failed to comply with FCA rules and this resulted in a portfolio that was unsuitable for our capital growth investment objective.’ And they want me to assess their complaint on that basis. But it is for me to decide how I consider and decide a complaint and to my mind the overall crux of this complaint is whether the portfolio was suitable for Mr and Mrs T’s agreed investment objectives and attitude to risk. However, I acknowledge Mr and Mrs T’s complaint is focussed on the action of the DIM and not the WM. Mr and Mrs T have said their complaint isn’t about the original investment advice received but more about how the PIMS functions, the DIM’s duties and HSBC’s failings in that. They say there is no need for me to comment on the WM – the investment adviser role – involvement and focus on the DIM. But for completeness, I have considered whether the model portfolio was suitable and whether the WM’s personal recommendation was the right one and met Mr and Mrs T’s investment objectives. As background, in 2015 Mr T was a recently retired employee of HSBC and ‘had spent many years working within a wealth management environment’. And HSBC has told us he ‘was heavily involved with the PIMS product and the sale of it, and he would have fully understood the inner workings of the product.’ I accept the point that HSBC is making in that Mr T was fully aware of what they were investing in at the outset, but this doesn’t detract from the fact that the portfolio invested into needed to be – and remain – suitable for their investment objectives. The July 2015 Financial Planning Report was provided by the WM further to meeting with Mr and Mrs T and the completion of a fact find to establish their investment objectives,

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capacity for loss, financial circumstances and attitude to risk. Mr T had received a lump sum from his pension and the summary of Mr and Mrs T’s needs and goals was an initial aim of capital growth with the option of receiving income in the future. The risk tolerance questionnaire concluded Mr and Mrs T were overall moderate risk investors (Mr and Mrs T held some equities/collective investments which they wanted to retain) but their preference for this investment was lower risk. While Mr and Mrs T were looking for capital growth, the Income Portfolio was recommended as Mr and Mrs T wanted an income producing portfolio as discussed and detailed in the 2015 Financial Planning Report. Looking at Mr and Mrs T’s investment objectives and risk profile – and particularly their requirement for an income producing investment – I don’t find that the advice to invest into the Income Portfolio to be unsuitable. Moving onto the continued suitability of the Income Portfolio Mr and Mrs T highlighted that it was when they started to take income from the portfolio in 2020 – and so it was no longer being reinvested – that it became apparent the capital growth had failed by that point and so they should have been advised to make a change as the portfolio wasn’t achieving that growth. I’ve thought about this but am satisfied the total return approach – the ‘overall objective is to provide smoother growth in the long term’ – remained suitable under the circumstances bearing in mind Mr and Mrs T’s income requirement and in particular their lower attitude to risk so I haven’t seen sufficient evidence to show the WM should have concluded the Income Portfolio was no longer suitable. Regarding the annual reviews carried out by the WM, I am satisfied that HSBC was clear that the purpose was to ensure the objectives of model portfolio Mr and Mrs T were invested in continued to match their objectives. And it was always the responsibility of the DIM to ensure the model portfolio matched its stated objectives. However, I recognise Mr and Mrs T’s concerns about the suitability because of the wording used in the 30 July 2024 annual review letter which gave rise to their complaint. It said; ‘This investment: • Matches the amount of risk you want to take However, the investment doesn’t: • Meet your personal bespoke objectives Normally, we’d move your investment to a more suitable portfolio model. However, we do not offer personal bespoke discretionary fund management. So you decided to keep this portfolio model because you feel that bond prices will improve with falling interest rates.’ I can understand why this comment unsettled Mrs T but equally I think this was a sensible thing for HSBC to point out as it highlighted the limitations of the model portfolio approach and ensured that Mr and Mrs T were in a fully informed position about it. While I don’t have the full ‘know your customer’ document update for 2024 which would show the client notes I do have them for 2023 where its recorded Mr T;

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‘…also said that he wants a 3.5% gross income+ for the investment to keep up with inflation. Advised that PIMS is not a bespoke portfolio that would be Private Bank and the amount they have invested isn’t sufficient and that PIMS is a managed risk profile portfolio. … RTQ [risk tolerance questionnaire] is moderate risk however PIMS is an Income (lower risk) portfolio. Discussed difference in risk level and existing investment. There is no need to take extra risk. Client wishes to leave the funds in the investment due to low interest rates available. Investment to remain as it is. Client is comfortable with this level of risk…they wish to continue with fixed monthly income withdrawals to use for discretionary spending, clients wish to invest to potentially get the best return possible for the risk they are prepared to take.’ I think it likely that a similar conversation was had in 2024 in that Mr and Mrs T wanted better growth but it’s clear from the above the level of risk Mr and Mrs T were prepared to take and that PIMS was a model, and not bespoke, portfolio service. And I’m satisfied that for both Mr and Mrs T, Mr T had sufficient investment knowledge and experience, and was sufficiently informed, about the correlation between risk and reward – the higher the risk profile the potential for higher growth but at the cost of the risk of losses as well – whereas the portfolio had a lower risk profile which would inevitably impact on the amount of growth achievable. The crux if Mr and Mrs T’s complaint is about the management of the Income Portfolio. Unfortunately, the portfolio didn’t provide the overall growth Mr and Mrs T wanted. They said it didn’t keep up with the rate of inflation and so this would have an impact their lifestyle. While I can’t consider performance in and of itself, I can consider whether the portfolio was unsuitable for Mr and Mrs T or whether it’s been mismanaged. The role of the DIM was to ensure the investments selected were matched with the objectives of the model portfolio. It wasn’t to create a bespoke portfolio for Mr and Mrs T. And provided a portfolio is invested in line with its overall objectives and disclosed risk – in this case for capital growth and income over the medium to long term by investing in a broad range of assets – collective investments, within the agreed risk profile, then it wouldn’t be fair or reasonable for me to uphold the complaint on this point. I haven’t seen anything to suggest that the portfolio was invested outside of its stated investment objectives or risk profile. And the fact that the risk of underperformance of the portfolio materialised against the benchmarks or didn’t keep up with the rate of inflation does not automatically mean that HSBC did anything wrong. In the absence of any evidence that HSBC mismanaged the portfolio – and the performance of the portfolio alone doesn’t evidence this – I am unable to say that HSBC has done anything wrong in the overall management of Mr and Mrs T’s investments. While I can understand why Mr and Mrs T may not be happy with the performance of the portfolio during the period in question, but the issue of portfolio performance is not straightforward in that it is actively managed. This means the money is invested in specific assets of funds chosen by the DIM of Mr and Mrs T’s model portfolio. If the portfolio in a certain period poorly performed that’s because the DIM had taken certain decisions that hadn’t paid off – at least in the period under review. That’s disappointing, of course, but reflects the DIM exercising their judgment – which they were supposed to do. It doesn’t mean the DIM had been negligent or failed in their duty of care. And it doesn’t mean the DIM’s decisions won’t pay off over the longer term.

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I’ll now turn to Mr and Mrs T’s concerns about the PIMS. Mr and Mrs T have made much of the two roles of the WM and DIM and the different rules and regulations that apply. But I haven’t seen sufficient evidence to show that the WM strayed into the territory of the role of the DIM, and vice versa. HSBC’s model portfolios themselves are managed by DIMs rather than the client facing WM and I can’t see the DIM accepted instruction from the WM as Mr and Mrs T claim. While it was the WM who selected the model portfolio most suited to Mr and Mrs T’s investment objectives and risk profile etc, it was the DIM who handled the daily investment decisions, research and rebalancing etc without any interference from the WM. Amongst other rule and regulations Mr and Mrs T have referred to the FCA’s Conduct of Business Sourcebook (‘COBS’) suitability rules under COBS 9 and COBS 16 which deals with reporting. Under COBS 9 the portfolio had to remain suitable for the investment mandate agreed – and as outlined above, I haven’t been presented with anything to conclude that it didn’t. Under COBS16A.2.1R and COBS 9A.3.2(4) HSBC needed to provide adequate reports on the service provided – annual reports or ‘periodic communications’ etc – which must include a statement of all transactions and portfolio valuation and an updated statement that the investments met the client’s investment objectives etc. And I’ve not seen anything to lead me to conclude that it didn’t comply with that regulatory requirement. It provided the periodic statements of account as well as the WM’s annual review letter – post a review meeting – which confirmed whether the model portfolio remained suitable. Mr and Mrs T were aware of how the PIMS investment process worked from the outset, particularly as Mr T worked for HSBC, and I can’t agree HSBC deviated from that. The relevant HSBC employees had FCA certification for their respective roles which I am satisfied they carried out. To my mind Mr and Mrs T’s complaint has arisen because the model portfolio hasn’t provided the growth they hoped for and the service generally didn’t meet their expectations. But I’m satisfied it was explained to Mr and Mrs T, and they fully understood, the correlation between risk and reward and chose to stay invested in the lower risk Income Portfolio. The fact that the growth Mr and Mrs T hoped for didn’t materialise is clearly unfortunate, but I can’t agree that HSBC – as an entity – has done anything wrong. Taking all the above into account, I don’t uphold Mrs T’s complaint. I am satisfied HSBC provided the service it said it would. While I appreciate Mrs T will be disappointed with the outcome to the complaint – it’s clear she feels strongly about it – but I hope I have been able to explain how and why I have reached that decision. My final decision For the reasons given, I don’t uphold Mrs T’s complaint about HSBC Bank UK plc. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs T to accept or reject my decision before 22 May 2026. Catherine Langley Ombudsman

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