Be afraid: Now Fos finds against adviser for ex-only sale

Even if you didn’t advise on Keydata, this is surely an ominous omen for any adviser facing an ombudsman claim.

When final decisions were first published on to the Fos’s new decisions website there were three in relation to Keydata, all of which were found against the advisers.

As of this morning (8 August) there are eight. The 100 per cent record of advisers losing their claim remains intact.

The aforementioned execution-only decision saw Fos find against an adviser from Manchester-based Care Asset Management, who followed through on a client’s ‘execution only’ instruction on the Keydata Secure Income Plan.

Let’s first deal with the elephant in the room. Care was fined £56,000 - down from £80,000 due to early settlement - by the then Financial Services Authority in March over failings in relation to advice to clients to invest an aggregate £3.1m in Keydata plans.

According to the regulator’s final notice, Care in particular had classified Keydata products as “secure” on its risk rating list with a risk rating of 3 out of 8, indicating that the Keydata products had a “lower risk profile”.

So, perhaps the ombudsman finding against it is inevitable. Then again, reading the detail of the notice there are worrying signs of how Fos interprets an adviser’s responsibility when conducting non-advised business.

Ombudsman Philip Miller states in the decision, for example, that the IFA did not analyse the client’s circumstances. He adds that the consumer had “at the most” a cautious attitude to risk and that the £7,000 investment in the was therefore not appropriate.

“In my view, the adviser should have exercised professional judgement about the inherent nature of the investment and its suitability for their client,” explains Mr Miller.

Caveat emptor? No such thing according to the Fos.

What’s the point of execution-only if you are expected to question the decisions of the client? Taking the time to do a fact-find and make recommendations based on risk designations is all part of an advised process that the client decline to take, surely?

In this case, it seems the adviser essentially shot himself in the foot. Mr Miller particularly highlights a letter sent to the client confirming that commission would be received for “advising in this matter”.

The adviser in his defence stated that the 3 per cent commission (£210) was insufficient to cover the basic administration costs and that it could not be argued that the level of commission indicated the transaction was ‘advised’.

I think the firm is missing the point: the ombudsman has probably just seen the word “advising” in that sentence and thought, “got you!”. Mr Miller states that he could not ignore the letter sent to the client to “confirm the issues discussed, the recommendations made and the resultant action being taken”.

Obviously this is semantics, but as we have been told repeatedly by our in-house lawyer when discussing matters relating to libel semantics can be the difference in being sued or not.

Care countered that it took great lengths in explaining to the clients that the investment was being established on an execution-only basis and this was confirmed in writing. It argued there is “no evidence” to suggest the investment was unsuitable, since the client’s circumstances were not disclosed.

The firm also said that the advice should be judged on the basis of what was known at that time, flagging up that the Financial Services Authority has used “hindsight” to now decide the risk profile of the Keydata product.

We’ve seen evidence before that the Fos will retrospectively decide an adviser’s risk profiling was wrong several years after the event, now it is even re-classifying non-advised advice.

Some will say there are unique elements to this case involving a firm that has previously effectively admitted to failings on Keydata sales - and maybe they are right. But it seems to me an adviser is on a hiding to nowhere defending Fos claims whatever the circumstances and that doesn’t feel right.