The Financial Ombudsman Service has upheld a client’s complaint against an advisory firm which advised her to switch a savings into a self-invested personal pension, which the adviser insists excluded the underlying Sipp investment into Harlequin.
Mrs D complained that Kingswood Financial Advisers gave her unsuitable advice, after being introduced to the idea of investing in overseas property investment Harlequin by an acquaintance.
A spokesman from the Fos noted said that they concluded the consumer was not an ‘insistent client’ and was not treated as one by Kingswood Financial Advisers. However, Kingswood claimed they had only advised on the Sipp wrapper and not the unregulated underlying investment.
Ombudsman Roy Milne wrote in his decision that Kingswood should have made it clear that the underlying investment was not suitable and that if she chose to ignore that advice, then they should have treated Mrs D as an ‘insistent client’.
The Fos found that the complaint should be upheld due to unsuitable advice, as the Harlequin investment was not included in the risk profile, the Sipp charges were higher than the ceding scheme and Mrs D’s recorded attitude to risk was 2-3 on a scale of 1-10.
“The lack of diversification and inherent risk in the Harlequin investment exposed Mrs D to more risk than she could suitably accept,” it added.
Kingswood did not agree with the assessment, stating that it was clear Mrs D had decided to invest on the advice of an adviser unconnected to Kingswood.
The firm argued that it was only instructed to assist in arranging the Sipp, with the legally binding agreement to buy the Harlequin property concluded and signed by Mrs D before Kingswood gave her any advice.
It added that the duties of care lay with the unconnected adviser and Mrs D herself. According to Kingswood, Mrs D’s commitment to the Harlequin scheme was so strong that she would have found an alternative adviser if they had not acted.
Mrs D told the ombudsman that she accepts that the unnamed adviser introduced her to Harlequin and that the introduction to Kingswood was for advice about the pension, however she said that “it is wrong for Kingswood to say it was not connected to the adviser”.
She would have expected Kingswood to advise her not to invest in such high risk funds given her low attitude to risk, according to the decision, adding “she was neither a sophisticated investor nor an insistent client”.
Kingswood recorded her attitude to risk as low, yet advised her to take out a Sipp at a lower projected value than her existing pension fund, stated Mrs D, adding that its report recorded her as looking to use funds from her personal pension to buy a commercial investment property.
The decision noted Kingswood should have seen the risk involved in investing in Harlequin.
Disagreeing with the firm’s arguments, Mr Milne said that the regulator’s handbook required it to have obtained information about its client and to provide suitable advice. “In my view, it is not possible to give suitable advice on the Sipp without considering the investments,” he added.
“The documentation did state that Kingswood would not take the suitability of the Harlequin property into account. But, this was Mrs D’s entire pension... the Harlequin investment was a property development in the Caribbean.”
The Financial Conduct Authority responded to requests for guidance on ‘insistent clients’, most recently with retail technical specialist Rory Percival suggesting that advisers should get them to put their investment decisions in writing before proceeding.
Mr Milne stated that Mrs D should be returned to the position that she would now be in, if she had been given suitable advice.
“An award that Kingswood compensates Mrs D in full now and takes ownership of the investment in Harlequin Property is therefore appropriate. Mrs D has been caused some worry by the loss of her pension. I consider that an award of £300 for the distress and inconvenience is fair.”
The UK sales arm of the embattled overseas property development business which trades as Harlequin Property entered liquidation last October, after being put into administration in 2013.
Neil Liversidge, managing director of West Riding Personal Financial Solutions, told FTAdviser that the reference to charges is a complete red herring.
“This is yet another example of how the Fos repeatedly looks to find ways in which the wrongdoing of unregulated persons can be hung around the necks of regulated advisers.”
Kingswood declined to comment.
peter.walker@ft.com
