"Once a red flag is raised on the type of investment, there is then a duty to investigate the investment to a higher level to avoid consumer detriment, assessing things like risk of insolvency.
"This would also apply to investments of a similar type to the specific one that had been flagged.
"If the information on an investment type being high risk is in the public domain, providers would not be able to claim ignorance and reduce their liability by avoiding doing additional due diligence."
The issue in the Berkeley Burke case stems from client Wayne Charlton bringing a complaint to the Fos in respect of the loss of his personal pension which he had invested in a Sipp administered by Berkeley Burke in 2011.
The investments in the Sipp included an interest in Sustainable AgroEnergy PLC, a company which purported to extract biofuel from trees grown in Cambodia.
In 2012 Sustainable AgroEnergy PLC entered receivership following intervention by the Serious Fraud Office as part of a criminal investigation.
Berkeley Burke maintained it had not given any advice to Wayne Charlton and said it intended to seek judicial review of the ombudsman's decision.
An initial decision by the Fos upholding the complaint had conflicted with a decision previously provided by the Pensions Ombudsman which had similar facts.
Berkeley Burke had argued the Fos had erred in law by finding the firm had not been required to execute Mr. Charlton's specific instructions in accordance with Cobs rules and by failing to follow previous decisions of the Pensions Ombudsman.
The case was heard in the High Court over three days earlier this month. The judge ultimately ruled the Fos was right in considering the merits of the case independently of previous cases heard by other ombudsmen.
He also said the Fos was right in its interpretation of FCA rules and principles to come to its decision of what is 'fair and reasonable'.
A judgement is still pending on the Carey case, where the judge is considering the same issue of due diligence.
A spokesman for James Hay said: "We undertake appropriate due diligence consistent with regulatory requirements and guidance. Our approach to due diligence remains under continuous review and we will take into account industry best practice and other developments including FOS adjudications and court decisions.
"It’s important to note that we stopped accepting new non-standard investments in 2017."