The Financial Ombudsman Service has rejected a network’s claim it shouldn’t have to cough up compensation for an appointed representative who misappropriated a client’s cash.
The Whitechurch Network Limited argued it shouldn’t have to pay up for the fact almost a decade ago Well Read Financial Solutions recommended a client ditch his investments and reinvest in the Well Read Property Portfolio.
In December 2006, Mr J was recommended by an adviser with Well Read to surrender two investment bonds (one with Friends Provident and one with Sterling Bonds) for £95,199.57 and £95,696.10 respectively.
In February 2007, Mr J was advised to surrender further investments with Abbey National totalling £70,600.02.
In 2014, Mr J was informed by the police that the adviser was being investigated for alleged fraudulent activities. It was then established that the Property Portfolio investment did not exist.
But the Whitechurch Network Limited argued under section 39(3) of the Financial Services and Markets Act 2000, the only activities it is responsible for are those that come within Article 2.1 of the appointed representative agreement.
Because the purpose behind the advice of its appointed representative was fraud it was advice that was outside the scope of Article 2.1 so The Whitechurch Network Limited argued it was outside the scope of what it accepts responsibility for.
In a final decision, ombudsman Doug Mansell said the appointed representative may well have been intending to defraud Mr J in undertaking those activities, but that does not mean they fell outside what the network is responsible for.
Mr Mansell said: “The purpose behind the advice of TWN’s appointed representative may well have been to commit a fraud but I do not agree with TWN’s submission that the scope of their responsibility is limited in the way it suggests as a result of this.
“As I said previously the advice to invest in the Well Read property portfolio was not a regulated activity.
“However that investment advice was ancillary to regulated activities that on my reading of the agreement between TWN and its appointed representative came within the scope of the business for which TWN has accepted responsibility.”
“I’m satisfied Mr J surrendered his existing investments because of the advice he received from TWN’s appointed representative.
“I’ve not seen evidence to persuade me that he would have done so if it had not been for that advice.
“It is not in doubt an act of fraud did take place, which led to the misappropriation of a substantial proportion of Mr J’s capital.”
The network was told to pay Mr J what would be the current value of the specific investments he was advised to surrender, less any money paid back to him by the Well Read financial adviser.