Fos highlights risk profiling flaws in trio of Ucis rulings
Three decisions in cases relating to investments into Stirling Mortimer funds found in favour of client.
The Financial Ombudsman Service has found against three advisers in a series of decisions regarding Stirling Mortimer unregulated collective investment schemes, particularly criticising flawed risk-profiling procedures that allowed low-risk investors to be placed into the funds.
The two provisional decisions and one final decision, all of which have been seen by FTAdviser, focus on failings on the part of the advisers due to the fact the products were unregulated and that clients were not properly informed of the risks involved.
Two decisions, one final and one provisional, were investigated by Fos ombudsman Doug Mansell. The final decision was related to an investment in Stirling Mortimer No 4 Cape Verde fund and the provisional decision an investment in the Stirling Mortimer No 6 Fund Morocco, both of which are offshore right to buy schemes.
In both his decisions, Mr Mansell found that the advisers did not warn the clients of the risks involved.
In the final decision, Mr Mansell states there was no attitude to risk found on the fact find. He adds that there was a separate unsigned and undated document that said the client was prepared to take a level five risk on a scale of one to 10, but that this did not carry much weight.
The ombusdman also insinuated that it was irrelevant that the client had signed a application to indicate the literature had been read and understood in both decisions, stating that it is more likely the clients had relied on the descriptions provided by the advisers.
A provisional decision was also awarded in favour of the client by another ombudsman, Roy Milne, regarding the No 4 Cape Verde fund, dated 5 September.
In this case, the IFA argued that it was not a unregulated collective investment fund as it was classified as a closed-ended investment company, but Mr Milne argued that the fund promotion stated that it was a Ucis.
In this case, a risk rating of 9 out of 10 was selected “by way of a tick box on the fact find”, but added that “no explanation was given as to how this had been determined”.
All clients will be receive redress to place them back in the position they would have been prior to these investments.
Under new proposals from the Financial Services Authority, advisers will be banned from promoting Ucis and similar high-risk products to ordinary retail consumers.
The Fos said it could not comment on the individual cases, but did state generally that the FSA ruling would not affect its judgements and that each decision on a Ucis complaint would be assessed on its own merits.
A spokesperson said: “Though the sale of Ucis has been in the media eye recently, this has no bearing on how the ombudsman looks at these often complex complaints, which turn very much on their own individual merits.”