Advice firm told to compensate clients over property scheme

Advice firm told to compensate clients over property scheme

An advice firm has been ordered to compensate three clients over “unsuitable” advice it gave to invest in investment scheme German Property Group, formerly known as the Dolphin Trust.

According to the Fos, Wealthmasters Financial Management, a financial planning firm with offices in Bridgend, Barnsley and London, currently has 17 open cases at the Financial Ombudsman Service, with 11 complaints made about the firm last year.

Three of the cases that have been heard related to investments in the unregulated Dolphin Trust.

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German Property Group, initially called Dolphin Trust, collapsed in 2020, putting millions of pounds of UK pension money at risk.

A BBC investigation in 2019 estimated the property group borrowed up to £600mn from the likes of pension investors, much of it sold through unregulated introducers.

The scheme focused on redeveloping German listed buildings into luxury apartments, and had promised UK investors double-digit returns.

But the company was plagued with problems as investors saw the maturity date of their investments pass without payment.

In 2020 the Financial Conduct Authority urged GPG investors to contact their adviser to complain amid warnings their funds could be at risk.

Wealthmasters' Fos cases

The first upheld case against Wealthmasters relating to its advice on GPG was brought by a client who was advised to invest £160,000 in the scheme between 2015 and 2016.

This equated to around 20 per cent of his pension fund. 

In coming to its decision the Fos noted that in 2013 the FCA banned the promotion of unregulated collective investment schemes, like the GPG investment, to the vast majority of retail investors in the UK. 

At the time, it told firms that the promotion of these riskier and complex fund structures would generally be restricted to sophisticated investors and high net worth individuals.

The FCA has defined a high net worth investor as one having an annual income of £100,000 during the 12 months immediately preceding the certificate or alternatively, someone who have net assets of £250,000 excluding the domestic home, pensions and life assurance policies.

The Fos outlined that despite the fact the client, referred to as Mr D, had a certificate to sign that he was a high net worth individual, the firm should have known from its fact-find that this was not actually the case.

In his decision, the ombudsman also noted that Wealthmasters had not done enough to satisfy him that there was a clear potential for Mr D to be better off as a result of its recommendations.

The second case, brought against the firm by a client referred to as Mr H and decided by the Fos in August last year, related to advice given by the firm in 2017 for the complainant and his wife to invest £25,000 each in GPG.

The couple complained to Wealthmasters in 2019 about the advice they had received and service they had been provided.

In coming to its decision, the Fos again noted that the GPG investment could only be promoted to high-net-worth individuals and questioned whether Mr H was one.