Investors inevitably take risks, but they are entitled to expect that finance professionals in charge of their portfolios will follow their instructions and manage their exposure to risk in line with them. That certainly did not happen in one High Court case in which a successful businessman's seven-figure investment shrank by more than half over a five-year period.
The businessman had invested £1.5 million in a portfolio run by a finance company in 2009. By the time he removed his funds in 2014, his investment was worth only £681,443. He launched proceedings against the company, alleging breach of contract, breach of statutory duty and negligence, claims that were denied by the advisers.
In upholding his claim, the Court found that he had chosen to invest in a medium-risk portfolio but that the finance company had breached its mandate by placing much of his money in higher-risk assets. The company had also breached its contractual obligation to operate a stop-loss policy by which it would have been required automatically to sell any investment that made a loss of 5 per cent.
The businessman was entitled to be compensated for his capital loss. However, the Court rejected his claim for further damages to reflect the growth that his portfolio would have achieved had it been invested in accordance with his instructions. He knew that his portfolio might not prosper, even if properly managed, and an award under that head would have the effect of removing any risk in the investment.
The final settlement will be the outcome of negotiations between the two sides.
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