Intrinsic has been forced to compensate Harlequin clients three times in the past year after the Financial Ombudsman Service found its representatives had given unsuitable mortgage advice to those investing in the troubled overseas property group.
Over the past 12 months, the Fos upheld four complaints involving mortgages and the property scheme — three of which have landed on Intrinsic’s doorstep.
In all three cases, the ombudsman notes the decision was not based upon the move to invest in Harlequin — as this would be investment advice — but ruled the investment was too risky to be classed as a valid repayment method for the interest-only mortgages which were taken out to invest in the now-defunct scheme.
Around 6,000 mainly British investors ploughed about £400m into the unregulated overseas property scheme through UK financial advisers and many released cash from their homes to fund the investment.
Such consumers were hoping for ‘guaranteed returns’ of 10 per cent a year from luxury villas that never came as the company entered insolvency in 2016 and subsequently went bankrupt.
The scheme is now under investigation by the Serious Fraud Office and, as a result of mis-selling, the scheme’s boss is set to stand trial for three counts of fraud in 2019.
In a Fos decision upheld in June, the ombudsman ruled clients were given unsuitable advice to take out an interest-only mortgage to fund their Harlequin investment.
The couple, who the Fos called Mr and Mrs A, had met with TBG Financial Services Ltd - an appointed representative of Intrinsic - in August 2008 to discuss remortgaging their home to invest in Harlequin.
Mr and Mrs A were advised to take out an interest-only mortgage in order to release the funds, but the ombudsman thought the investment was not a reasonable means of ensuring the mortgage was repaid.
The ombudsman said the adviser would have been aware Harlequin was the reason Mr and Mrs A sought the new mortgage and would have known the nature of Harlequin as a risky investment.
Although the ombudsman service noted the adviser was not giving investment advice, they said the adviser should have thought about how the mortgage was to be repaid and that the nature of the investment should have raised concerns as to the security of the repayment strategy.
In this case, Intrinsic Mortgage Planning was ordered to pay the difference between the total cost of the interest-only mortgage and what the total cost of the repayment vehicle would have been — plus 8 per cent simple interest per year and £750 for trouble and upset.
In a similar case upheld in July, the ombudsman ruled another pair of clients, dubbed Mr and Mrs H, were also unsuitably advised to borrow on an interest-only basis to invest in the scheme.
Mr and Mrs H had also met with TBG, which provided mortgage advice regarding the funds needed to raise capital for four investments — one of which was Harlequin.
The couple applied for an interest-only mortgage for £219,000 (£29,000 of which was used to pay a deposit on the scheme), but the ombudsman once again found the proposed repayment strategy of the overseas investment was too risky for Mr and Mrs H.
The ombudsman said: “I believe the adviser ought to have highlighted the potential repayment risks more specifically to them.
“The documentation showed that income from the sale of the investment property was the recorded means of repaying the debt.”
The ombudsman thought the adviser did not have reasonable grounds to conclude the repayment strategy was suitable or appropriate and ordered Intrinsic Financial Planning to pay £29,000 to represent the additional borrowing taken on an interest-only basis used to fund the deposit, alongside interest payments, the fees originally paid and £750 for the trouble.
In the third case, which was upheld in February, the ombudsman ordered Intrinsic Mortgage Planning to repay the difference between the additional amount the client borrowed on an interest-only basis plus £750 for the client’s trouble.
The ombudsman thought “suitable” advice in all three cases would have been to take out a repayment mortgage as the “risky” investment in Harlequin was not a suitable repayment plan for an interest-only mortgage.
In all three cases, the ombudsman said a repayment mortgage for the same amount would have now been paid off.
Recent Fos cases about Harlequin have typically involved customers who invested in the property through self-invested personal pensions, but it is thought consumers were also told to mortgage their properties in order to invest in the scheme.
| Number of cases handled by the Fos involving mortgage advice relating to Harlequin | |||||
| Sep 18 - Sep 19 | Sep 17 - Sep 18 | Sep 16 - Sep 17 | Sep 15 - Sep 16 | Sep 14 - Sep 15 | |
| Upheld | 4 | 3 | 4 | 2 | 0 |
| Not upheld | 1 | 4 | 2 | 7 | 2 |
| Total | 5 | 7 | 6 | 9 | 2 |
Intrinsic rebranded as Quilter Financial Planning in July 2019 after its parent company completed the acquisition of Lighthouse but Quilter did not want to comment on the Fos decisions as the cases pre-dated the acquisition of Intrinsic.
imogen.tew@ft.com
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