Personal Pension  

Ssas advice to invest in Ucis costs adviser

Ssas advice to invest in Ucis costs adviser

An adviser must compensate Ssas trustees who were recommended a Ucis fund invested in German nursing homes.

An adviser from Professional Financial Services (PFS) met with trustees of a small self administered pension scheme (Ssas) in May 2008. 

PFS decided the trustees, who were directors of their own company, were to be treated as sophisticated investors. 

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The trustees’ attitude to risk was recorded as adventurous and according to PFS they wished to take a more aggressive approach to investments in the Ssas. 

An investment of £150,000 was recommended in Merchant Place Property Partnership 64, a fund that would use borrowing to buy 75 per cent of nursing home properties in Germany.

The risk warnings stated investing in the fund may expose investors to significant risk of losing their entire investment. 

Investors were informed the fund "will not be listed, quoted or dealt in on any stock exchange". 

Although the fund's objective was to maximise capital growth on "a relatively low risk basis", investors were warned "investing in the fund may expose them to a significant risk of losing their entire investment". 

However the description the adviser gave in the suitability report was about unit trusts, which was deemed by Fos to be misleading as MPPP64 was an unregulated scheme. 

The ombudsman pointed out it is not the same as a regulated unit trust as there is no protection provided by Financial Services Compensation Scheme. 

But PFS argued just because the fund was a Ucis did not mean it was necessarily high risk as the fund was provided by a reputable firm and it was invested in property. 

The adviser argued nursing homes were thought to be a good investment at the time plus Germany was a strong economy. 

PFS also claimed the Ssas may have been greater than £600,000 in size when the investment of £150,000 in the Ucis took place. 

However according to Fos, in July 2010 the regulator highlighted the maximum proportion of the portfolio that should be invested in Ucis was between 3 per cent and 5 per cent. 

As a result, ombudsman Roy Milne said investing one quarter of the Ssas in a single unregulated investment was unsuitable. 

He said: “MPPP64 was highly geared. The loan to acquire the properties was estimated as 75 per cent of the fund size. The investment was difficult to sell. And there was the risk of losing the entire investment. It was unregulated. 

“I think this was a high risk investment. I don’t accept that the trustees were sophisticated investors. They ran their own business, but I haven’t seen any evidence to show that they had experience in investing.”

PFS was told to compare the performance of the investment with that of the benchmark and pay the difference between the fair value and the actual value of the investment.