Quilter Financial Services Limited · DRN-6158612

The complaint Mrs B has complained about advice she received to invest in an Offshore Bond within a Loan Trust. She says the advice was expensive and unsuitable for her. The advice was provided by Blueprint South West Limited who were an appointed representative of Quilter Financial Services Limited (“Quilter”). Mrs B is being represented in her complaint by a third party. For simplicity I’ll refer to all actions and comments as being those of Quilter or Mrs B. What happened The background to this complaint is well known to both parties so I don’t intend to set it out in full here. Instead, I’ve concentrated on what I consider key to my decision. In September 2018, Mrs B met with Quilter and a fact find was completed, recording the following about Mrs B’s circumstances: • She was 50 and married with no children. • She lived in a property that her husband owned. • She owned an investment property which provided £13,000 per year in rent, and she had additional investment income of £30,000 per year. The day after Mrs B met with Quilter, the Quilter adviser emailed Mrs B to confirm action points to pursue, these being: • Wills – both Mrs B and her husband needed to update their Wills. • Inheritance tax (‘IHT’) planning– the adviser had calculated that Mrs B’s estate on death would be valued at around £1.6m. There would be no IHT to pay if her estate passed to her husband. But if he predeceased her this would leave a potential IHT tax bill of £500,000. The adviser explained that “As we discussed there are a number of things that you can do to mitigate potential IHT, but we dismissed either giving assets away, or putting life insurance in place. We did however contemplate establishing a suitable ‘Trust”. The adviser then went on to set out that he considered the correct route would be to establish a Loan Trust. This would be funded by selling off a number of onshore bonds Mrs B held. “All the bonds you currently have are ‘Onshore’, as such they pay a 20% tax charge to HMRC each year which is why you can draw your income tax free… By using the same provider [bond provider] but labelling the bond ‘Offshore’ we avoid this upfront tax charge, thus you would see broadly a 20% better return on your investments. At the same time utilising a ‘Loan Trust’ would mean that, whilst you can still draw 5% of the capital each year (taken monthly) as income tax free, this is deemed to be a repayment of a loan that you have made to yourself. As such after 20 years (20 X 5% = 100%) the loan is fully ‘repaid’ and outside of your estate for IHT”

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• Income levels – while it was agreed the income level (£30,000 from investments and £13,000 rental income) was satisfactory, the adviser noted the IHT planning (mentioned above) would potentially provide an opportunity to increase income. An Attitude to Risk (‘ATR’) report was completed and had deemed Mrs B to have a “Moderate” ATR. Mrs B signed the Loan Trust agreement on 24 October 2018, noting both Mrs B and her husband as Trustees. And it noted the amount being lent by Mrs B to the Loan Trust as £679,000. Mrs B also signed a form nominating her Quilter adviser as the Discretionary Asset Manager, with advisory authority. Quilter’s suitability report set out its understanding of Mrs B’s circumstances, needs, objectives, priorities, reasons for its recommendation and the costs involved. After the Loan Trust was established an offshore bond (held within the Trust) was set up, commencing on 14 November 2018. The bond was invested in the Cirilium Moderate Fund and was set up to provide Mrs B with an income of £34,000 per year. Mrs B complained to Quilter in 2024 that the offshore bond and Loan Trust had not been suitable for her. Quilter didn’t uphold the complaint so Mrs B referred the matter to this Service for an independent review. One of our Investigators reviewed the complaint but they didn’t think the advice had been unsuitable. Mrs B didn’t agree with the Investigator’s assessment of the complaint. In summary, Mrs B has said: • There was no IHT liability and even if there was, it was not a priority. • The Trust was not set up according to Mrs B’s needs as her husband should have been added at the outset as a beneficiary. • The advice process was not carried out in a way that allowed Mrs B to understand what was going on. Instead, she was hurried and pressurised into making the wrong decision. • It’s questionable whether 4 of Mrs B’s previous bonds needed to be surrendered to fund one bond invested into one portfolio. The matter has been passed to me to reach a final decision. 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. My role is to consider the evidence presented by Mrs B and Quilter in order to reach an independent, fair and reasonable decision based on the facts of the case. In deciding what’s fair and reasonable, I must consider the relevant law, regulation and best industry practice. These include the overarching Principles for Businesses (‘PRIN’). Principles 1 (integrity), 2 (skill, care and diligence), 6 (customers’ interests) and 9 (reasonable care) are of particular relevance here. And I’ve taken account of the Conduct of Business Sourcebook (‘COBS’) in the regulator’s handbook, which sets out the rules regulated businesses have to follow. I’d like to assure Mrs B that although I’ve only summarised her complaint and submissions above, I’ve read and considered everything she (and Quilter) have said and provided. But I’m not going to comment on every point raised. Instead I’ve concentrated on what I see as

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the key issues. And having reviewed all the evidence provided, I’m in broad agreement with the Investigator’s view and I agree with the outcome they reached. I’ll explain why. At the time the advice was given to Mrs B, Quilter was required to carry out its business in line with the Conduct of Business Rules (‘COBS’). COBS 9.2 required Quilter to take reasonable steps to make sure its recommendations were suitable for Mrs B. To achieve this, COBS 9.2.2R said Quilter had to obtain enough information from Mrs B to ensure its recommendation met her objectives, that she could bear the related investment risks consistent with these objectives and that she had the necessary experience and knowledge to understand the risks involved in the transaction. I also think it’s important to say that when considering this complaint, it isn’t my role to determine what would have been the best or most suitable advice for Mrs B. It’s clear that there will be many different ways of achieving a customer’s objectives and with hindsight, some strategies will appear more or less beneficial. However, the rules I’ve set out above simply say that the advice must be suitable for Mrs B. So, that is my starting point here. Was IHT planning one of Mrs B’s needs and objectives? In order to determine whether the recommendations were suitable, I’ve considered the information Quilter gathered about Mrs B’s circumstances and her objectives. The Quilter advisor met with Mrs B and completed a Fact find document on 11 September 2018. This document captured information about Mrs B’s circumstances such as income, assets held and expenditure. The information obtained during the fact find meeting would likely have shaped the adviser’s recommendation and will have been used to assist when drafting the Suitability Letter. A Suitability Letter is a regulatory document that firms are required to send to clients which summarises the client’s financial details and circumstances together with their investment objectives. It also records the recommendations made and the reasons behind them. The letter is intended to be used as the summary document for both the firm and the client. I can see from the file documents that there are two suitability letters relating to the advice to invest in the Loan Trust and offshore bond. They are dated 29 October and 5 November 2018. Both letters appear to be almost identical. Mrs M argues that the Suitability letter was dated after the Loan Trust was established and I accept that’s the case. But there was no requirement for the Suitability Letter to be issued prior to Mrs B accepting Quilter’s recommendation. At the time, COBS 9.4.4 said that is should be issued “when or as soon as possible after the transaction is effected or executed”. Having said that I’m aware that the adviser set out his recommendation to Mrs B in an email, dated 12 September 2018, and further information was provided by email on 6 October 2018. So before the Loan Trust was established. Central to Mrs B’s complaint is that she didn’t have an IHT liability and that even if she did, it wasn’t a priority. I accept there’s no IHT liability between Mrs B and her husband so Mrs B could pass her estate on to her husband free of IHT. However, should Mrs B’s husband pre-decease her, there would have been a potential IHT charge of £500,000 on her estate. Mrs B has said that as she doesn’t have children IHT planning wasn’t a priority for her. And while I have of course taken account of her testimony, I must also consider the evidence from the time of the sale.

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The suitability report dated 29 October 2018 set out the adviser’s priority for reviewing Mrs B’s financial needs. The adviser had noted “Estate planning” as 7 out of 8, with 1 being a priority. However, the note under this section states: “You have specifically asked me to advise you on your investments, income, pensions and IHT liabilities and I have focused my advice in this report on these needs [bold is my emphasis]” If IHT wasn’t one of Mrs B’s priorities, I would have expected her to have raised this with the adviser at that time. I do appreciate that this letter was issued after the Loan Trust paperwork had been signed. But I’m also conscious that the day after Mrs B’s first meeting with the adviser – and before any of the Loan Trust paperwork had been signed – the adviser’s email to Mrs B set out the action points following the meeting, one of the action points included was IHT planning. So I think Mrs B had the opportunity to correct the adviser, had this not been one of her objectives or a priority for her. And while I appreciate Mrs B says she had no children and she would have preferred for her estate to pass to her husband, it seems the recommendation was made to protect her estate in the event of her husband predeceasing her. And I note that Mrs B did have other beneficiaries that she wanted to benefit from her estate, such as her brother. Mrs B has also said that she would have preferred to provide gifts for people while she was alive. But the email sent by the adviser the day after the initial meeting suggested this had been discussed and dismissed. Overall, while I appreciate Mrs B doesn’t agree, I’m satisfied that IHT planning was one of her objectives at the time of advice. And as can be seen, if her estate was to pass to anyone other than her husband, there would likely be a substantial IHT liability. Was the Loan Trust suitable? As I’m satisfied one of Mrs B’s objectives was IHT planning, I’ve gone on to consider whether the Loan Trust was suitable for Mrs B’s needs and objectives. A Loan Trust is a trust that allows for a potential reduction in IHT over time while enabling the settlor to retain access to the original capital. In this case, the Loan Trust was set up in order to make use of any Inheritance Tax planning benefits. The key feature being that any growth on the investments would fall outside Mrs B’s estate and not be liable for Inheritance Tax. As discussions between Mrs B and Quilter took place face to face, I am not able to know what was said in these meetings. Instead, I need to consider Mrs B’s and the adviser’s recollections, together with the available documentation to understand if it was likely that Quilter made Mrs B aware of how the Loan Trust was set up and the consequences of having it in place. I can see from the file that the initial emails to Mrs B set out the recommendation that a Loan Trust be used. And these emails explained how Mrs B would “loan” the Trust £700,000, which would be repaid over 20 years. These emails also explained that the “loan” was interest free and Mrs B would receive her capital back; they don’t state that Mrs B (or her husband) would be entitled to any further income other than repayment of the loan capital. As I’ve explained above there are two suitability letters on file. The adviser has explained that it was his practice to take a draft copy of the suitability letter along with him to meetings with clients. And then a final bound copy would be issued on completion of the case. I’ve

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looked at the date on the Suitability Letters and I think this is likely what happened. So I think it’s likely the Suitability Letter would have formed part of the discussion Mrs B had with the adviser on the day she signed the paperwork. It was mentioned in several places in the Suitability Letter that: “The settlor [Mrs B] creates an [Loan Trust provider] Loan Trust (discretionary version) by making an interest-free loan to the trustees [Mrs B and her husband] they are appointing [bold is my emphasis]”… … “This loan is interest-free and repayable on demand, which means you can request the repayment of all or part of the loan at any time because you retain full access to it. The arrangement is designed to provide the settlor with loan repayments that you can request at any time”… … “Initially you will ‘lend’ the [Mrs B Loan Trust] the capital sum £700,000. The [Mrs B Loan Trust] will repay this loan at a rate of 5%pa (paid to you monthly as £2916.66 direct into your HSBC bank account, this is income you do not have to declare to HMRC. Over a period of 20 years therefore 5% per annum equals 100% and the loan you have made will have been deemed to be repaid, as such all the residual monies in the bond (as a result of investment growth) will sit outside of your estate and be inheritable with NO liability to IHT”… … “LIMITATIONS OF THE TRUST You have the right to repayment of the loan. Once this amount has been repaid you will not be able to benefit from the bond or the trust” Even if I’m wrong and the Suitability Letter wasn’t discussed in person, I’m satisfied Mrs B did receive a copy. From what I have seen in documentation available to me, I think it’s likely Mrs B was informed of how the Loan Trust would operate in practice and the consequences of setting it up in this way. And I’m satisfied the documentation states that after the loan has been repaid “all the residual monies in the bond (as a result of investment growth) will sit outside of your estate and be inheritable with NO liability to IHT” Mrs B also saw and signed the Loan Trust Deed which, while couched in legal terms, is not unduly long and I think ought to have led her to realise that the trust was for the benefit of her beneficiaries. I have to say that it seems unlikely that Mrs B would have signed the Loan Trust Deed and committed £7000,000 to this investment without reading it and at the very least that ought to have led her to question who benefitted from the trust and how it operated. Mrs B says she was mis-sold the Loan Trust so I also need to see if the product sold did what it was intended to do and was suitable for her. And ultimately I’m satisfied the Loan Trust met Mrs B’s objectives of reducing any IHT liability. While she may not have been able to benefit from growth on the funds “loaned” to the Loan Trust, she would receive an income of up to 5% of the initial amount invested over the next 20 years. She doesn’t appear to have required any additional income and she did have other investments and sources of income in any event. In her complaint submission Mrs B has said that as the beneficiary box was not completed her husband has no option to benefit from the growth on the investment during Mrs B’s

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lifetime. Which she says would have in effect been an indirect way of her benefitting from the growth on the bond. I’ve considered this further, although Mrs B says this wasn’t discussed, I can see that the Suitability Letter mentioned that: “The class of beneficiaries can be added to at a later date except for adding the settlor’s spouse or civil partner. Any widow, widower or surviving civil partner is automatically included in the class of beneficiaries, therefore, if the settlor does not add their spouse or civil partner to the bond they will still be able to benefit after the settlor’s death [bold is my emphasis]” This was also mentioned on the first page of the Loan Trust Deed, which Mrs B signed. So if anything in the Suitability Letter or Trust Deed didn’t align with Mrs B’s understanding or if she was unsure of anything, I would have expected her to have raised this at that time. I think it’s also worth explaining that although it would have been possible to add Mrs B’s husband as a beneficiary when the Loan Trust was being established, I don’t think the fact that this wasn’t done means the advice she received was unsuitable. The main purpose of the Loan Trust was to move funds out of Mrs B’s estate for IHT purposes, which as I’ve explained above, I’m satisfied Mrs B agreed was an objective at the time of advice. And while adding her husband as a beneficiary wouldn’t by itself have had any adverse inheritance tax implications, great care does need to be taken in these situations. When payments are made to a Settlor’s spouse during the Settlor’s lifetime and the Settlor enjoyed a direct or indirect benefit it can make the whole trust ineffective for inheritance tax purposes. Overall, I’m satisfied the Loan Trust was suitable for Mrs B as it met her objective of reducing any potential IHT liability on her Estate. Suitability of the offshore bond held within the Loan Trust Mrs B has also complained that she was advised to surrender a number of existing bonds she held for investments in the Offshore Bond held in the Loan Trust. It doesn’t appear there were any penalties for these being surrendered and consolidating a number of onshore bonds to one offshore bond had certain tax benefits. These were clearly explained in the Suitability Letter. And I’m satisfied the offshore bond was invested in line with Mrs B’s moderate attitude to risk (ATR). Mrs B’s ATR had been established having completed an ATR questionnaire and I think based on her circumstances, moderate was a fair assessment of the risk Mrs B was prepared to take, and more importantly that she had the capacity to take. So overall I’ve not found that it was unsuitable advice for Mrs B to surrender a number of existing onshore bonds for investment in the Offshore bond held in the Loan Trust. Fees Mrs B has also complained about the fees taken when the Loan Trust and bond were established. However, I’m satisfied these were made clear to Mrs B before she agreed to any of Quilter’s recommendations. The Terms of Business Mrs B signed in September 2018, explained that Mrs B would be charged 3% of any amount invested and 0.75% for ongoing annual reviews. And the fees (both the percentage and actual amount) were clearly set out in the Loan Trust initial Fees document that Mrs B signed on 24 October 20018. The fees were also set out in the Suitability Letters.

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While I appreciate Mrs B may not now be happy with how much she paid for the advice she received, I’m satisfied she was made aware upfront of the costs involved. Conclusion In summary, I think that it is likely that Quilter informed Mrs B of how the Loan Trust would work and what the consequences of it would be. The documentation that I’ve seen, including a document signed by Mrs B, indicates that the investment will be held in a trust and that, apart from the capital loaned, the trust was for the benefit of the beneficiaries. And having considered everything provided I think the Loan Trust and offshore bond met Mrs B’s objectives and was not unsuitable for her, given that she wished to reduce her IHT liability. I appreciate that Mrs B will be disappointed in the decision that I have reached but based on the available evidence I don’t uphold her complaint. My final decision For the reasons explained, I don’t update this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs B to accept or reject my decision before 24 April 2026. Lorna Goulding Ombudsman

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