RBS-owned 'banker to the Queen' Coutts sets aside £110m to compensate wealthy clients who were sold unsuitable investments

Coutts bank, a private arm of RBS that counts the Queen among its clients, has set aside £110million to compensate thousands of customers who may have been sold unsuitable investments, it revealed today.

The business has made the provision as part of a review of investment advice given to clients as far back as 1957. The worry is that its private bankers have padded the portfolios of ‘high net worth’ account-holders with unsuitable investments that involve customers in more risk than they are willing to take.

It comes days after state-backed RBS was fined £14.5million for serious failings in its advice to mortgage customers from June 2011 to March 2013. The group, which is 80 per cent-owned by the taxpayer, has also put aside more than £4billion for mis-selling payment protection insurance and interest rate swaps - complex financial products which were sold to small firms.

Coutts chief executive Michael Morley has already written to 15,000 customers warning them that there had been 'some instances where the advice given during our previous advice process could have been better'.

It is understood that the £110million sum will come from a £206million provision that RBS has already made for the private bank. But it is the first time that the cost of this particular issue, detailed in the Coutts accounts, has been made public.

The probe will see the upmarket bank trawling through the portfolios of around 15,000 well-heeled clients, checking that investments are in line with the levels of risk they have said they are willing to take.

The review, which is timetabled to finish early next year, will delve back decades. The period in question goes up to November 2012 when Coutts overhauled its advice process by separating the roles of bankers and investment managers.

Prior to this date, Coutts bankers were also responsible for managing their clients’ investment portfolios.

Clients, who must have assets excluding their home of at least £1m before they are allowed a prestigious Coutts card and chequebook, will be offered compensation if investments are deemed unsuitable, or the bank hasn’t provided sufficient evidence that the investment is suitable. Coutts declined to disclose how much it is setting aside to cover the debacle, claiming the scale of payments cannot be determined yet.

Of the list of fines slapped on RBS, two in the past three years relate specifically to Coutts.

In November 2011 it was fined £6.3m for mis-selling the AIG Enhanced Variable Rate fund to its clients. Comedian Frank Skinner and Sir Keith Mills, founder of the Nectar card, both invested millions in the fund, which was suspended for four years from late 2008. Both publicly expressed their dissatisfaction with the bank, while Mills went one step further by taking legal action and later settled for an undisclosed sum.

Coutts was also fined £8.8m in March 2012 for failings in its money laundering controls. But it is not the only organisation that is grappling with the problem of clients being lured into unsuitable holdings. 

Last year UBS had its knuckles rapped with a £9.5m fine for mis-selling the same AIG fund as Coutts, while adviser network Sesame was fined £6m for failing to ensure suitable advice for its clients, alongside poor systems and controls.

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