SIPP 

Adviser told to pay after passing on wrong risk score

Adviser told to pay after passing on wrong risk score

Advice firm Black Star Wealth Management has been ordered to pay compensation to a client after communicating the wrong risk score to a discretionary fund manager.

The Financial Ombudsman Service found the adviser had some part to play in the client's eventual losses and should therefore put the client in the position he would have been in had the mistake not occurred.

A separate claim against the DFM, which had picked the high risk investments, is still underway.

The client, who the Fos called Mr L, first approached Black Star in 2015 as he wanted to transfer the £150,000 deferred benefits he held in a defined benefit pension to a Sipp.

Black Star advised him to transfer the money and recommended a discretionary fund manager to pick the investments.

But in sending the instructions to the DFM a mistake occurred and the client's attitude to risk was quoted as seven, when the actual risk profile the adviser had assessed was four.

The discretionary fund manager invested Mr L’s pension fund into a number of small assets in a portfolio corresponding to the risk rating seven. Some of these failed and others have become illiquid so Mr L lost out.

Mr L complained to the Fos about the discretionary fund manager, which the Fos upheld.

However, the discretionary fund manager then went into default which meant that the claim had to be referred to the Financial Services Compensation Scheme. This claim is still ongoing.

Black Star agreed to waive its annual charges to Mr L until the complaint with the discretionary fund manager was resolved but it said that the discretionary fund manager was responsible for any investment loss.

Ombudsman Keith Taylor said: "Black Star has always accepted that it made a mistake in its instruction to the discretionary fund manager.

"But the discretionary fund manager was a regulated entity in its own right and was responsible for the investment choices it made."

He added: "But Black Star did make a mistake. I agree that it is fair that it should put Mr L in the position he would have been in but for that mistake."

The Fos therefore decided that Black Star should waive its annual charges until the complaint with the discretionary fund manager is resolved and that it should calculate any investment loss payable to Mr L by comparing two notional values.

These should be the notional value of the funds if investments had been in line with a risk profile of seven and the notional value if invested at a risk profile of four.

Mr Taylor said: "I think it’s fair to use a notional valuation as Black Star wasn’t responsible for the actual investments selected."

amy.austin@ft.com 

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.