Adviser must repay client for recycling investment advice

Adviser must repay client for recycling investment advice

An adviser who recommended a client with a cautious attitude to risk put a significant portion of their pension in a single unregulated fund has been criticised by the Financial Ombudsman Service

A complaint against MFS Partnership was upheld after a fund invested in by its client - referred to as Mr S - suspended redemptions, leaving him unable to access his pension savings.

The adviser in question moved to MFS Partnership in June 2012 and Mr S became a client the same time. What followed was a recommendation Mr S put £210,477 in the New Earth Solutions Recycling fund, via his self-invested personal pension.

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Ombudsman Adrian Hudson said: “At the point Mr S became a client of the firm in June 2012, a significant portion of his pension was held within one unregulated fund.

“Mr S has provided evidence he wanted low risk investments and I consider the adviser was very much aware that Mr S had a low risk investment approach,” he stated, adding the investments held within the Sipp were not low risk.

“There was an over concentration of a single (unregulated) fund which went against the usual principles of diversification. There was the potential problem that assets might not be realisable quickly.”

The adviser defending his actions, saying the fund continued to grow steadily and was achieving returns in excess of 12 per cent per annum, net of charges.

He also gave assurances that as part of his due diligence he personally visited New Earth’s recycling sites to ensure the fund remained a secure and viable investment.

But in 2013 the fund was temporarily suspended to allow New Earth to look at applying for an IPO and it remains suspended, meaning redemptions are not currently possible.

For its part, MFS Partnership said the case should also be put on hold until the fund’s new owners had taken over, which it suggested would lead to trading resuming imminently.

But Mr Hudson said after Mr S became a client, good practice would suggest that his existing investments should have been reviewed for ongoing suitability. “I say this because the adviser was aware of the previous advisory business’ concerns over the investment.”

The ombudsman stated the value of the investment should be assumed to be zero, because it is difficult to know its actual value.

It ordered MFS Partnership to compare this value to the performance of the FTSE WMA Stock Market Income Total Return Index for half the investment, and for the other half use the average rate from fixed rate bonds.

The firm should then pay the difference in value over the past four years and add 8 per cent simple interest.