London Stone Securities Limited · DRN-5500210

The complaint Mr S has complained about the management of his investment portfolio by London Stone Securities Limited (London Stone) specifically that too many trades have been executed and the agreed investment strategy has not been followed. What happened In February 2023 Mr S, as a director of a micro enterprise A, but I shall refer to Mr S throughout to avoid confusion, began using London Stone investment management service. When he became their client, it was agreed that a discretionary managed service would be provided with Mr S setting the strategy that should be followed. On 18 April 2024 Mr S complained to London Stone that the investment strategy he had put in place was not fully followed. Specifically, he had said that: 1. The trade limit of five per month was exceeded. The total number of trades was 88, at the time of making the complaint, which generated £8,800 in trading fees for London Stone. 2. It was agreed that he would be invested in high dividend paying companies that were financially stable companies that followed London Stone’s strategy of “Dividend Income Plus” but this was not followed. 3. Trades were bought from Alternative Investment Markets (AIM), which he had not agreed to and have resulted in losses. 4. The approach of selling was changed to “part selling 50% of the stock” which was not effective and created additional trading fees resulting in a larger overall loss to the portfolio. 5. From 14 September 2023 Mr S requested that no further trades were made on the portfolio as he was unhappy with the performance. This meant London Stone only managed the portfolio for six months. When it came to buying or selling shares Mr S discovered that he was restricted to only “viewing” the portfolio and had to communicate any instructions through London Stone which delayed him carrying out the trades and subsequently affected the share’s value. 6. When Mr S arranged to transfer his portfolio away from London Stone he was charged £400 which he was unhappy with but felt he had no choice but to accept at the time. 7. An alternative charging structure was discussed where there would be no commission charges from March 2024 onwards and it was agreed the current stocks in the portfolio would not be sold until Mr S gave the instruction. On 12 March 2024 a notice was sent to Mr S confirming that existing shares had been sold creating a significant loss. 8. Initially an annual management fee of £1412.12 was charged despite agreements it would not be. This was later returned on 6 March 2024.

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9. At the time of complaint, the overall loss to the portfolio was £7,000 which Mr S was not seeking a refund of but rather £3,342 which is made up of forced sales of stocks which were not agreed, a partial refund of management fees and stock transfer fees. In its submissions to our service London Stone explained that Mr S was involved in many of the trades it executed and played a significant role in the decision-making process. They also said that Mr S was actively assessing their trades and his level of involvement underscores that the strategy was implemented with transparency and in line with his preferences. In closing it was highlighted that Mr S was experienced in trading, had demonstrated has knowledge of the markets and that the strategy implements aligned with his risk profile and stated investment preferences. Our investigator reviewed the complaint and felt that it should be upheld, in summary, they felt that London Stone had not adhered to Mr S’s investment strategy. London Stone did not agree with the outcome and so the complaint has been passed to for review. 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. There is a considerable amount of information here but I’m not going to respond to every single point made. No discourtesy is intended by this. Instead, I’ve focussed on what I think are the key issues here. Our rules allow me to do this. This simply reflects the informal nature of our service as a free alternative to the courts. If there’s something I’ve not mentioned, it isn’t because I’ve ignored it. I haven’t. I’m satisfied I don’t need to comment on every individual argument to be able to reach what I think is the right outcome. Having considered what Mr S has submitted I feel that central points to his complaint arise from the discretionary mandate he had with London Stone not being adhered to. As such I have begun my investigation by reviewing how Mr S was onboarded as a client and what was agreed to. I have began with the “Risk Warnings Disclaimer” where Mr S is categorised as a retail client. This means that London Stone would need to make sure its discretionary trading decisions are suitable. The requirements are set out by the Financial Conduct Authority (FCA) in the Code of Business Sourcebook (COBS), specifically COBS 9A.2 which relates to assessing suitability for retail clients. In line with the above rules, I would expect to see some form of fact find or suitability report. I have been provided a copy of a document called “Client PCP” which appears to be some form of fact-finding document outlining Mr S’s attitude to risk, investment experience and tolerance for loss. I am satisfied that this document confirms Mr S wanted a fully managed discretionary service. With that in mind I am persuaded that Mr S wanted London Stone to make investment decisions in line with the mandate that he would agree, however within the same document Mr S is told he would need to regularly check his portfolio to check the strategy and trades. I have seen a similar obligation in the “Risk Warning Disclaimer” where it states: “Please take this as my formal instruction that I do NOT want to receive risk warnings whenever I agree to a trade. This is because I feel that it is unnecessary and time-

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consuming to detail each of these risks each me [sic]. If I am either uncomfortable or unsure of the risks then I will inform my broker at the me in which case I understand that my broker shall go through in detail each and every risk”. As our investigator has identified this statement is quite contradictory in itself as well as in relation to the service Mr S had signed up for. The first half being that Mr S did not want to be contacted about each trade but then stipulating that he must take a more hands on approach with monitoring the account. I’ve gone on to read the “Terms of the Agreement” document signed by Mr S outlining the parameters of the account and how London Stone would be managing it. I can see Mr S’s motivation for undertaking a discretionary account was that “I am often unavailable and believe that I may miss opportunities and be disadvantaged if my broker cannot get in contact with me when he/she needs to”. When it came to setting the parameters of the account Mr S selected that he did not want to invest in Alternative Investment Markets (AIM) and Funds. He also said that there should be a maximum of 5 trades per month with deal sizes of 10,000 and that stop losses should not be used. Other parameters of the agreement I’ve noted are: “The firm will take charge (until further notice from the client) of al investment decisions and will not require consent for individual transactions and/or strategies” “It is the client's responsibility to regularly check the account (at least monthly) to ensure that it is being kept in line of his/her objectives and that there are no erroneous entries”. “If the client is unhappy with any transactions executed, this must be raised by the client within 30 days of the trade date. Transactions which are deemed to be unsuitable by the firm and against the client's investment objectives may be cancelled only within this 30 day period”. I’ve noticed that before selecting the agreement parameters, London Stone explain “…the firm shall endeavour to fulfil these requirements as closely as possible whilst allowing for a degree of flexibility…” As our investigator identified the above disclaimer looks to be in contradiction to what the FCA expects concerning retail investment management. Mr S made it clear he was not willing to invest higher risk AIM shares so London Stone should not be making those types of trades which were outside Mr S’s tolerance to risk. While I acknowledge the flexibility clause, Mr S was explicit about his preference for not including these shares and London Stone hasn’t demonstrated why it was suitable for Mr S. I am also in agreement with our investigator’s comments concerning the number of trades Mr S selected. An amount between one and five was requested but this was caveated further down the form saying this was only in relation to opening new positions. Mr S is required to select a box confirming how many trades he would like made per month and I think upon selecting the box it is reasonable for him to assume this would include both opening and closing. As there is a material condition to the maximum number of trades carried out, I do not think it is fair to include it as an addendum lower down the form where there is a chance it could be missed. Mr S had expressed a desire for fewer trades and longer positions held longer. London Stone needed to be able to justify the suitability of the frequency of trading if it was going to detract from Mr S’s instructions which it hasn’t done.

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In conjunction with the terms of agreement, I’ve looked through the “Investment Strategy” document which outlines what strategy Mr S would like to implement: “Trading mainly in individual shares rather than funds, as opposed to funds. There may be some limited trading in investment trusts, funds, ETFs, this may be in the UK or overseas. Trading in shares which are mainly concentrated in the UK blue-chip market, including FTSE100 and FTSE250 companies. There may be some limited trading in overseas shares including in the US. Whilst some of the companies in (section 1) may offer dividends this is a by product of the strategy and it is not my objective. I am seeking an overall return on my portfolio which can be made either by capital growth and/or dividends. I am not looking for income per se. Buying and selling more frequently where a profit, even if quite small, can be captured. This can be over a short period of days and weeks or over a number of months. Buying and selling less frequently where there is a loss. in other words, I would prefer to hold onto "losing" shares for the medium and long term, which have fallen in price, rather than to sell. This is in the expectation that over me [sic] the price may recover, and in the meantime, I may receive some dividends. If the losing share in (section 5) do not recover over a reasonable period of me, say 12 months, I will discuss with my adviser what the best option may be including whether to sell the shares and crystalise loss, continue to hold them or even to buy more at the new, lower price. I am open to discussing with my adviser and investing a small proportion of my total share portfolio in more risky share including penny shares within the AIM market. I will agree with my adviser how much in due course. I am open to being flexible in this strategy and will speak to my advisor to make the necessary adjustments if I wish to change anything going forward”. The second page of the same document has a section headed suitability: “I have considered the different strategies and deem the one outlined in this document to be the one which most closely matches what I am looking for in terms of my investment objectives and appetite for risk”. Reviewing the two documents side by side my impression is that they contradict one another. Mr S completes the first document outlining the parameters of the relationship only for the strategy to largely ignore it. Considering all of the above I’m not persuaded that the discretionary service that Mr S received was appropriate for what his needs and objectives were. The documents I’ve seen contradict each other and do not make it particularly clear how the account will be operated. I’ve not seen a financial recommendation as to why the particular arrangement entered into was suitable or needed other than Mr S requesting it. During the time that London Stone was managing Mr S’s account I’ve not seen sufficient evidence that it was managing Mr S’s account in line with that mandate or that it met his agreed attitude to risk. I can see that the relationship changed between London Stone and Mr S but nothing appropriately documenting that change has been made available to me. I am of the opinion that when Mr S wanted to change the relationship or parameters of the service he was receiving, a new assessment of his circumstances should have been undertaken to

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determine whether the new service being provided was suitable, but I cannot see that this has taken place. London Stone has said in response to our investigator’s assessment that Mr S executed numerous trades on an execution only basis and that they should not be responsible for those losses as they were carried out against their advice. As has been outlined above, Mr S had a discretionary managed relationship with London Stone and in the event that relationship changed they were obligated to redefine the parameters of that relationship, which they did not. I also seen that our investigator has contacted the platform provider on which these trades were placed. The platform provider has confirmed that Mr S did not have access to the platform meaning London Stone would have placed those trades. If London Stone considered these trades to be inappropriate they should have refused to carry them out or as I have said above redefined their relationship with Mr S. Mr S was paying for a discretionary managed service and as such London Stone are responsible for the trades they carried out for Mr S. I have considered the point as to whether Mr S should carry more responsibility for the trades he directed once he became more involved. However, as Mr S could not place the trades independently, London Stone was placing them on his behalf and taking payment for the service, I’m not persuaded that Mr S should be held solely responsible for those trades. Mr S was a retail client and regardless of his own knowledge of financial markets it is London Stone’s, which is the professional adviser, responsibility to ensure Mr S was taking actions in line with the parameters he had set out. If they felt he was exceeding his level of risk, investing more that he could afford or acting out of line with his investment objectives they should have taken steps to intervene rather than simply following the instructions. London Stone’s submission to this service was very detailed and its covering letter outlining its points is 23 pages. For the sake of concision, I do not intend to quote directly from it, but I’d like to assure them that their response has been considered. The overriding theme from the response that I have taken is that Mr S has been a contributing factor to the trades that were made and that he often dictated the strategy. From what I have seen, I accept Mr S was involved in trades and how investments should be made however, as I have said above this was not the relationship London Stone agreed to have. Thinking about the degree to which London Stone is responsible is finely balanced. Mr S was involved in investment decisions and that involvement has been considered carefully. However, Mr S did ask for and was paying for a service where London Stone make the trading decisions for him in line with a set mandate. If London Stone wanted to remove its responsibility it needed to communicate that by telling Mr S that those trades weren’t its idea and that he would be responsible for the consequences, and it didn’t do that. London Stone agreed to manage Mr S’s portfolio at its own discretion and in the event that they felt he was overstepping that mandate it should have explained to Mr S what their relationship was and that should he want a more involved role it should have formally redefined their relationship. As it did not and it actively contributed to Mr S, as it has said, acting against his own instructions and their advice they must bear the responsibility for this. I have considered the level of fees that Mr S was charged which has been challenging to determine due to the lack of clarity provided around this element. From what I’ve seen some of the trades carried out were in line with Mr S’s risk profile and others were not which is ultimately why the portfolio recommended was unsuitable for him as it did not adhere to the

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trading strategy or his attitude to risk. In cases where it is decided that advice was unsuitable, we can direct a business to recreate the investment as if it had been suitable. Had the advice been suitable Mr S would have always been likely to pay charges for the advice and ultimately the trades that were carried out so the benchmark I’ve used below takes account of this. I have considered the distress and inconvenience award of £200 our investigator recommended which I think is fair considering the service and customer journey Mr S has experienced. Mr S agreed for a managed portfolio which he did not receive, he has realised a loss which would have been a shock and he then needed to transfer his portfolio away from London Stone after a short period due to losing faith in the business which would have also caused him inconvenience. Putting things right Fair compensation In assessing what would be fair compensation, I consider that my aim should be to put A as close to the position it would probably now be in if A had not been given unsuitable advice. I take the view that A would have invested differently. It is not possible to say precisely what A would have done differently. But I am satisfied that what I have set out below is fair and reasonable given A's circumstances and objectives when it invested. What must London Stone do? To compensate A fairly, London Stone must: • Compare the performance of A'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. • Pay to A £200 for distress caused by the loss of investment and inconvenience by having to transfer entire portfolio away from London Stone. Tax may be payable on any interest awarded. Portfolio name Status Benchmark From ("start date") To ("end date") Additional interest “A” General Investment Account No longer in force FTSE UK Private Investors Income Total Return Index 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.

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Fair value This is what the investment would have been worth at the end date had it produced a return using the benchmark. Any withdrawal from the London Stone should be deducted from the fair value calculation at the point it was actually paid so it ceases to accrue any return in the calculation from that point on. If there is a large number of regular payments, to keep calculations simpler, I’ll accept if London Stone totals all those payments and deducts that figure at the end to determine the fair value instead of deducting periodically. London Stone must pay the compensation within 28 calendar days of the date on which we tell it Mr S (A) my final decision. If London Stone fails to pay the compensation by this date, it should pay 8% simple interest per year on the loss, for the period following the deadline to the date of settlement. Why is this remedy suitable? I have decided on this method of compensation because: • A wanted Income with some growth and was willing to accept some investment risk. • The FTSE UK Private Investors Income Total Return index (prior to 1 March 2017, the FTSE WMA Stock Market Income total return index) is a mix of diversified indices representing different asset classes, mainly UK equities and government bonds. It would be a fair measure for someone who was prepared to take some risk to get a higher return. • Although it is called income index, the mix and diversification provided within the index is close enough to allow me to use it as a reasonable measure of comparison given A's circumstances and risk attitude. My final decision I uphold the complaint. My decision is that London Stone Securities Limited should pay the amount calculated as set out above. London Stone Securities Limited should provide details of its calculation to Mr S in a clear, simple format. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr S (A) to accept or reject my decision before 28 April 2026. Rob Croucher Ombudsman

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