SIPP 

Ucis risk assessment comes to haunt adviser

Ucis risk assessment comes to haunt adviser

Advice firm Gyr Consulting has been ordered to pay compensation to a client after it incorrectly identified three funds as medium risk.

The Financial Ombudsman Service found that three unregulated funds should have been classified as a higher risk than they were and the adviser should therefore put the client in the position he would have been in had he invested in medium risk funds.

The client, who the Fos called Mr L, met with an adviser from Gyr in May 2009 to discuss transferring some of his existing pension plans to a self-invested personal pension after he deferred buying an annuity.

In July 2009 Gyr recommended how the funds in the Sipp should be invested.

This included making investments into the Centurion Defined Return Fund, the EEA Life Settlements Fund and the Quadris Environmental Forestry Fund, all of which were unregulated collective investment schemes.

Mr L invested £25,000 in Centurion in July 2009. Then in September 2009 he invested £30,000 in Quadris and £25,000 in EEA.

The Quadris fund was suspended in March 2011 and by June 2014 the EEA and Centurion funds had also been suspended.

Gyr had recorded Mr L’s attitude to risk as balanced-medium however, the adjudicator thought that Gyr had wrongly classified the three funds as medium risk when they should have been high risk.

The Fos stated the fact these funds were unregulated and could not be freely promoted showed they should have been thought of as a higher risk.

The Centurion fund was complex as it invested in unusual potentially illiquid assets, used leveraging or borrowing and was described as involving a high degree of risk which could result in the loss of all or part of the investment, the ombudsman stated.

It added: "It should have been apparent at the time of Gyr’s advice that this type of fund presented significant risks."

Similarly, the EEA fund was designed to operate in a specific way and could also suffer significant losses.

The Quadris fund was intended for long term investment which was considered as a higher risk.

The Fos heard how Gyr recommended that Mr L should take a more cautious, low to medium risk approach with his investment portfolio as he had chosen to defer buying an annuity.

It said his portfolio should be split, with 65 per cent in short term, 30 per cent in medium term and 5 per cent in long term investments.

It recommended that the funds being invested in the Sipp should be split in the same proportions with £286,000 in three short term investments, £130,000 in four medium term investments, which included Centurion, EEA and Quadris, and the remaining £21,000 in four long term investments.

Gyr said the £80,000 invested in the three disputed funds only represented about 6 per cent of Mr L’s total investable capital. 

However, the Fos found that if the Centurion, EEA and Quadris funds had been correctly classified as higher risk, this would have brought the percentage of recommended higher risk investments in his Sipp to more than 23 per cent.