David Hopkinson IFA Limited · DRN-5961826

The complaint Ms G complains that she was provided with unsuitable investment advice by David Hopkinson IFA Limited (“DHIL”). What happened The background to the complaint will be well known to both parties, so I’ll only give some key details here. In July 2022 Ms G was advised by DHIL to invest £100,000 into a stocks and shares ISA (£20,000) and a General Investment Account (£80,000) to be held on an investment platform across a portfolio of nine funds at a ‘moderately aggressive’ level of risk. The investments were then surrendered in August 2024 and shortly after a complaint was made on Ms G’s behalf to DHIL. The suitability of the advice was questioned primarily on the basis that Ms G, although resident in the UK at the time of the advice, was a US citizen and it was felt that insufficient consideration had been given to the tax implications of her investing in the UK. Ms G’s representatives sought compensation, including investment loss, the additional costs incurred in dealing with the tax liabilities, a refund of DHIL’s fees and an award for the distress and inconvenience caused to Ms G. DHIL responded to the complaint, accepting that it could’ve done more to explicitly highlight the potential tax consequences and offering to refund the costs that Ms G had paid – an initial advice fee of £2,500 along with ongoing advice charges that had been applied at 0.5% per year. However, it made no offer in respect of any tax liabilities or related costs as it felt they hadn’t been evidenced and/or could potentially have been avoided. Ms G’s representatives didn’t accept this and referred the matter to this service. Our investigator concluded that the advice to invest in the portfolio had been unsuitable, broadly because of the tax situation. She recommended compensation be paid to Ms G based on this service’s usual approach – that being, to put her back in the position she’d have been in had she not received the advice. So, broadly along the lines of that sought by Ms G’s representatives. The investigator proposed that determining any investment loss should be based on a comparison of the performance of the unsuitable portfolio with this service’s ‘no risk’ benchmark. And alongside that DHIL should refund the adviser’s fees and the related additional tax liabilities and accountancy costs. She also felt it should pay £400 to reflect the distress and inconvenience caused to Ms G by the matter. DHIL broadly accepted the investigator’s proposal, in line with its initial acceptance of the unsuitability of the advice. But it continued to question its responsibility for the tax liability and costs, primarily on the basis that, given her circumstances, Ms G would in any event have incurred some US tax liability and related accountancy costs. No agreement on this point could be reached, so the matter was referred to me to review.

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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. As noted, DHIL has broadly accepted that the advice provided to Ms G to invest in the portfolio was unsuitable given her circumstances as a US citizen resident in the UK. So, my consideration here is only in respect of how things should be put right. The ongoing dispute in that respect relates to the responsibility for Ms G’s US tax liabilities and related costs. As noted, DHIL’s view is that whatever alternative Ms G might have opted for had she not received the unsuitable advice, she would nevertheless have incurred US tax liabilities and costs. It considers it unfair that Ms G should be compensated for both investment loss and the tax liabilities and costs. This service’s usual approach regarding compensation is, as noted, to put the consumer back in the position, as far as is practical, that they’d have been in had the business’s error – in this case the provision of unsuitable advice – not occurred. So, in this case there are two main issues to consider in respect of compensation. Was there any investment loss because of Ms G investing in the portfolio, as opposed to what she might otherwise have done. And were there any costs incurred by her because of her investing in the portfolio. In respect of the former, I think any loss should be based on a comparison between Ms G’s actual position having invested £100,000 in the portfolio and what her position would likely have been had she not been unsuitably advised and done something else. My view is that, suitably advised, she wouldn’t have invested at all, as she would’ve been made aware that investing in the type of portfolio recommended to her would incur punitive US tax charges and additional costs related to the resulting complex tax situation. So, I must consider what Ms G would otherwise have done with her £100,000. There’s no way to be certain, so that’s why I think the solution suggested by the investigator – a comparison with this service’s ‘no risk’ benchmark – is reasonable in the circumstances. Making this comparison to determine if there was any loss doesn’t assume Ms G would still have invested her £100,000. Rather it assumes it would have been left in some sort of ‘no risk’ environment and achieved a return broadly commensurate with that. I recognise that whatever else might otherwise have happened – for instance if she’d put the money into fixed rate bonds – Ms G would unavoidably have had to pay some tax and accountancy fees. She is after all a US citizen resident in the UK with significant investments held in the US as well as cash held in the UK. But I’m nevertheless satisfied on the basis of the supporting documentation and explanation provided by Ms G’s representatives that what is being claimed (as set out below) relates solely to additional tax liabilities and costs incurred by Ms G as a result of investing in the unsuitable portfolio. Clearly the amounts in question are large, but the type of funds and trusts Ms G was recommended for the portfolio are categorised by the US tax authorities as Passive Foreign Investment Companies (PFICs) and subject to particularly harsh taxation in the US. The calculations relating to the liabilities are also complex, hence the need for Ms G to have obtained additional support. Lastly, I note DHIL’s comments around the small amounts included in the redress for UK tax and shipping figures. For clarity I confirm that I think these are fair – the former being tax paid on dividends from the GIA, the latter relating to the cost of sending the significant amount of tax return documentation to the US (pro-rated to take account of the fact that

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some documentation would’ve been sent in any event). Putting things right Fair compensation In assessing what would be fair compensation, as I’ve said, I consider my aim should be to put Ms G as close to the position she would probably now be in if she had not been given unsuitable advice. I take the view that Ms G would have acted differently. It is not possible to say precisely what she would have done differently. But I am satisfied that what I have set out below is fair and reasonable given Ms G's circumstances and objectives when she invested. What must DHIL do? To compensate Ms G fairly, DHIL must: • Compare the performance of Ms G's investment with that of the benchmark shown below and pay the difference between the fair value and the actual value of the investments. • If the actual value is greater than the fair value, no compensation is payable. • DHIL should also add any interest set out below to the compensation payable. Income tax may be payable on any interest awarded. Portfolio name Status Benchmark From ("start date") To ("end date") Additional interest GIA and ISA portfolio No longer in force Average rate from fixed rate bonds Date of investment Date ceased to be held Pay 8% simple interest per year on any loss from the end date to the date of settlement. Actual value This means the actual amount paid from the investment at the end date. Fair value This is what the investment would have been worth at the end date had it produced a return using the benchmark. To arrive at the fair value when using the fixed rate bonds as the benchmark, DHIL should use the monthly average rate for one-year fixed-rate bonds as published by the Bank of England. The rate for each month is that shown as at the end of the previous month. Those rates should be applied to the investment on an annually compounded basis. Why is this remedy suitable? I have decided on this method of compensation because:

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• The average rate for the fixed rate bonds would be a fair measure given Ms G's circumstances and objectives. It does not mean that Ms G would have invested only in a fixed rate bond. It is the sort of return a consumer could have obtained had they not invested but retained the money on deposit in some form. In addition to the above calculation DHIL must pay Ms G compensation of – • A refund of the initial advice fee (£2,500). • All the amounts of US tax paid between 2023 and 2025 relating specifically to the unsuitable advice (totalling $8,188). • All the amounts of UK tax paid between 2023 and 2025 relating specifically to the unsuitable advice (totalling £43.70). • The accountancy fees (totalling £3840) • A proportion of costs of shipping tax-related paperwork to the US (£60.68) Interest at 8% simple should be applied to all the above amounts, from the dates they were paid to the date of settlement. DHIL must also pay Ms G £400 for the distress and inconvenience caused to her by the matter. My final decision For the reasons given, my final decision is that I uphold the complaint and direct David Hopkinson IFA Limited to pay compensation to Ms G as set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Ms G to accept or reject my decision before 28 April 2026. James Harris Ombudsman

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