Fos upholds £50k complaint despite fund structure concern

The ombudsman has upheld a complaint against a financial adviser over a client’s £50,000 investment into a Stirling Mortimer property fund, despite raising concerns over the fund’s structure and stating that the prospectus may have been “factually incorrect”.

In a final decision seen by FTAdviser, the unnamed financial adviser is cited as having told the ombudsman that it should not be liable for an investors’ losses as they were due to “unforeseeable market conditions” precipitated by the collapse of Lehman Brothers.

The investor had complained through law firm Regulatory Legal about his adviser’s “negligent advice”, after he invested £50,0000 in the Stirling Mortimer Property Fund PCC. Investments into the fund were used to pay 30 per cent on a property development in southern Spain.

Regulatory Legal has argued that the advice was “negligent” as the recommended fund was an unregulated collective investment scheme and the investor was not sophisticated.

The ombudsman said in its decision that there “may be some question” as to whether the fund is a Ucis or a Qualified Investor Scheme and that the fund prospectus could be “factually incorrect”.

However, it upheld the investor’s complaint stating that the fund is “high risk” and “illiquid” and therefore “inconsistent with his attitude to risk”.

The adviser firm had argued that the fund was not high risk as the investment had been discussed in detail and that the level of sophistication involved was “very low”. The adviser said an “ordinary investor” could understand the mechanism of this type of investment.

The intention of the fund was to sell the properties on completion when the deposits, plus “significant” investment returns, would be returned to the investors.

According to the decision, due to the economic climate in Spain and a collapse in demand for holiday homes the developer has not been able to sell the properties and proceeds due to Stirling Mortimer were not paid.

The adviser firm said that it could not be held liable for losses that were due to “unforeseeable market conditions”, but both the adjudicator and the ombudsman disagreed.

Fos also flagged up that Stirling Mortimer, on behalf of a group of investors, has commenced legal action against the developer to refund the initial deposits paid by the investors.

The firm was successful in its legal action in the High Court in Spain but the developer has given notice that it intends to appeal to the Spanish Supreme Court with the aim of overturning the High Court’s decision.

The ombudsman ordered the adviser firm to put the investor back into the position he would have been in if he had invested in less risky funds and reinvest funds into the Sipp “if the Sipp provider will accept the redress payment”.

It added that if the investor does receive payment of his deposit then this should be returned to the advisory firm.