The Financial Ombudsman Service (Fos) has held Sipp provider Liberty accountable for losses of £36,200 after it allegedly failed to carry out due diligence on unregulated investments in its Sipps.
In three preliminary decisions handed down in recent weeks the ombudsman found Liberty had breached its duty of care to clients because it ought to have known that the investments were high risk and could cause consumer detriment.
The three individuals had invested a total of £36,200 into the Ethical Forestry scheme through Liberty Sipp.
The investments were made on the advice of introducer Avacade.
The Fos adjudicator, which marked the first stage in the ombudsman’s decision making process, found "there was a high chance that a lot, if not all, of the business introduced by Avacade, would contain a high risk of significant consumer detriment".
The adjudicator said it therefore was not "fair or reasonable for Liberty to have accepted [the clients’] applications on the basis and manner proposed".
In the decisions, the Fos adjudicator stated Liberty Sipp should compensate the clients to put them back in the position that they would have been in had they not transferred their pensions, including any gains they would have made in their previous pensions, and also pay a nominal sum of £500 to each for the trouble and upset caused.
Liberty Sipp now has the opportunity to appeal the preliminary decisions.
Liberty Sipp did not immediately respond to a request for comment.
Meanwhile, a spokesman for law firm Anthony Philip James & Co claimed it had 500 more cases lodged with the Fos against Liberty Sipp for clients, with a value of more than £18m.
Glyn Taylor, solicitor at Anthony Philip James & Co, said: "We are delighted that the Fos has recognised what we’ve been arguing for months, that Liberty Sipp had a responsibility to carry out due diligence on the business it accepted from Avacade and in failing to do this, and agreeing to accept such a large amount of questionable business from Avacade, it is liable for clients losses."
Liberty Sipp, alongside other Sipp operators, had previously argued it was not liable for investor losses as they had accepted business on an execution-only basis.
But in a separate ruling handed down in October in a judicial review brought by rival Sipp provider Berkeley Burke against the Fos, the judge found Sipp providers could not shirk their responsibilities in this way.
Mr Justice Jacobs had said the Fos was right in its interpretation of FCA rules and principles to come to its decision of what is 'fair and reasonable' in the 2014 case against Berkeley Burke.
He said: "[The ombudsman] considered that he needed to make up his own mind on the basis of the facts of the case that were before him, and the statutory framework in which he was operating. For the reasons given above, this approach was correct and did not involve any error of law.
"For these reasons, the claim for judicial review is dismissed."
carmen.reichman@ft.com
