The Financial Ombudsman Service has rejected an adviser’s argument that just because they failed to meet regulatory requirements does not mean the business gave a couple unsuitable advice.
A couple, referred to as Mr and Mrs E, complained about the advice Greystone Financial Services Limited gave them in November 2006 to surrender a bond and invest £25,000 in unregulated collective investment scheme Rock City Park Jersey Unit Trust.
The pair argued the trust contained more risk than they were prepared to accept as they always took a cautious approach with their investments.
By 2012, the total investment was lost as a result of under-occupancy of the commercial property purchased with the money raised by the fund.
Greystone argued although the eventual performance of the fund was disappointing, this was a result of the unprecedented global crisis at the time and the complaint made by the pair should be thrown out.
The adviser insisted a Ucis was suitable for the pair as they were existing clients “for whom the firm had made a reasonable assessment”.
However no fact find had been completed for the pair since 1999.
Greystone argued that, even if certain regulatory procedures were not followed, the fund was suitable to Mr and Mrs E.
The adviser argued even though no fact find had been completed since 1999, an intermediary was only required to gather sufficient evidence to know his client and the available file showed that the adviser knew Mr and Mrs E well and the pair were made aware of the risks of Ucis.
But the ombudsman said Mr and Mrs E were identified as balanced investors and the fund wasn't suitable for them.
Mr E was already invested in traded endowments, healthcare and technology funds.
Given this asset allocation, the ombudsman ruled investing in the Rock City fund took the portfolio over a balanced risk profile.
In a final decision, ombudsman Doug Mansell said: “I understand Mr E had been a client of the adviser, even before Mr E became a client of Greystone. But I don’t think this is evidence, in itself, to show the adviser took reasonable steps to ensure the Ucis was suitable.
“While the adviser’s letter did set out the nature of the fund, and some of the risks, it also contained a number of very positive comments. For instance, the adviser refers to the fund being projected to deliver a 10.5 per cent annual rate of return. This would potentially double the initial investment.
“On the whole, I don’t think the letter gave a balanced view of the risks of investing in the fund compared with the possible benefits.
“Because of the unregulated nature of the fund, and the type of risk it posed, I don’t think it should have been recommended at all."
Greystone was told to compare the performance of Mr and Mrs E's investment with that of the benchmark and pay that sum plus 8 per cent interest.
emma.hughes@ft.com
