An advisory firm must pay a client compensation after putting half their pension into an unregulated property fund, despite their cautious attitude to risk, the Financial Ombudsman Service has ruled.
The complaint concerns a client referred to as Mr C, who was advised in 2010 by Financial Aims Limited to invest nearly £70,000 in Guernsey-listed Opus Propertybourse Performance fund.
Suspended by authorities in Luxembourg in May 2012, Fos stated the fund has since lost much of its value.
The client complained to the ombudsman the advice to invest in an unregulated fund was inappropriate for his low attitude to risk.
Financial Aims Limited had argued the adviser who made the recommendation was unaware it was an unregulated collective investment scheme, and if they had known they would not have recommended the fund.
They said they had relied on Propertybourse promotional material which had referred to it being authorised by the Financial Services Authority.
But in an initial decision a Fos adjudicator said Financial Aims Limited “ought to have been aware this wasn’t a mainstream fund, even if it wasn’t certain of its regulatory status”.
The adjudicator added the limited information Mr C was given by the intermediary gave an overly positive image of the fund.
In a final decision now published, an Ombudsman upheld the adjudicator’s earlier decision.
“The promotional material referred to FSA authorisation. Comparisons were made with mainstream property funds,” read the decision. The adviser therefore felt “as cheated as [Mr C]” but agreed “as an unregulated investment it was unsuitable”.
The adviser did state the fund was portrayed as less volatile than equities and was not intended to be high risk, making it an ideal long-term investment for Mr C, who would not be drawing a pension for some time.
FTAdviser has previously reported on the failure of several Propertybourse-branded funds, which were promoted to advisers and their clients before one by one going into liquidation in recent years.
The ombudsman pointed out the funds used high levels of borrowing to buy properties and there was no track record to assist with assessing the risk of the fund, or its potential performance.
“As a result, the advice had been given with a complete disregard for Mr C’s likely risk profile and investment objectives,” the adjudicator wrote.
At first a spokesman for Financial Aims Limited responded Mr C was more aware of the facts than had been made out, suggesting he was aware of the underlying investments and knew about property markets as a result of his business travel and experience.
The intermediary’s spokesman added Mr C viewed his overall pension position jointly with that of his wife, so the proportion of their overall pension provision being invested in the fund was less than the adjudicator suggested.
Mr C said a £1,600 adviser fee was collected at around the same time as he invested, with the adjudicator stating in October 2015 this would be taken into account when calculating Mr C’s loss.