The Financial Ombudsman Service’s publication of a decision to uphold a consumer’s complaint about an IFA’s recommendation to invest in Arch Cru funds could be set to open the floodgates for complaints about the advice process.
Fos today (22 November) published a provisional decision relating to a couple that had complained about the advice they were given by their IFA in relation to an £8,000 investment into the CF Arch Cru Investment Portfolio.
The complaint was found in favour of the clients and the IFA has been ordered to repay redress, with many speculating that the decision to publish the decision will prompt more to complain, or to pursue a legal case against their IFA.
Gareth Fatchett, director at Regulatory Legal, which has set up a steering group that is pushing for a judicial review into the Arch Cru redress package, said: “The Fos is effectively inviting people to complain by publishing this. The Fos position sets out the regulatory view on the risk of the CF Arch Cru funds.
“It is very unusual for Fos to publish in this way. I suspect the timing is no coincidence as both the FSA and Capita come under pressure to explain themselves.”
Last month Manchester-based law firm Pannone confirmed that it will be suing “hundreds if not potentially thousands of IFAs” who advised investors on the Arch Cru funds.
Kit Sorrell, partner at the firm, said that it will be targeting IFAs that are still trading, though it will also “not be precluding” those that have gone bust.
He told FTAdviser: “We have got a number of investor clients and we will be suing the IFAs for negligence. We have a dedicated financial services negligence team who will be dealing with this.”
The decision published today relates to a couple that invested £4,000 each in an Arch Cru fund in early 2008, all of which was placed in stocks and shares Isa. In March 2009, dealings in the Arch Cru fund were suspended.
A complaint from the couple was rejected by the IFA on the basis that problems with the fund were “the responsibility of the fund’s managers”. The case was referred to Fos and it was initially upheld by an adjudicator, but was later appealed by the IFA.
The provisional decision, written by Ombudsman Tony Boorman, again found in favour of the clients and questioned the research conducted by the firm, referencing the “modest” size of the business.
It also highlights that the fund was more than 28.4 allocated to private equity, despite being listed as a cautious managed fund.
The report notes that although the Investment Management Association classified the fund as cautious managed, this does not mean the fund is low risk or not volatile and this should have been understood by an IFA.
The IFA, who is not named in the decision, has been ordered to pay the clients redress, which is to be calculated based on the return of the original £8,000 investment, plus a return of Bank of England base rate plus one per cent as at the date of the Fos’ final decision.
The encashment value as at the date of the final decision and the amount the clients can get from the FSA’s £54m compensation scheme will then be deducted to give the total redress amount.
A spokesperson for Fos said: “It [the decision] has been published so that people are aware of what our approach is. It gives context and provides commentary on what we will be looking for. We will be looking at individual consumer complaints.
“Fos has received approximately 100 complaints from consumers against their IFAs.”
The spokesperson also pointed out that the £54m redress package offered by the FSA was in regard to how the funds were managed and not the advice.
Joe Egerton, campaigns director for Justice in Financial Services (JFS), which is backing a separate judicial review claim by IFA firm Coull Money, claimed that publication of the decision is a “good thing” in that it reveals to Fos’ “thinking”.
Hi added, however, that in another respect it is “deeply worrying” for advisers as any “test case” - which is what he says this decision “clearly” represents - needs to be managed “properly”.
