Carey loses due diligence case at Fos

Carey loses due diligence case at Fos

Carey Pensions must compensate a client after the Financial Ombudsman Service found it had not carried out adequate due diligence before accepting a self-invested personal pension application from an unregulated introducer, despite a High Court ruling in its favour in a similar case last week.

The ombudsman concluded Carey, which now goes by the name of Options, should have refused to give the client a Sipp as he intended to invest in a high-risk, unregulated investment. It is therefore liable for the losses he has suffered.

This comes after a High Court judge ruled in the long-awaited Adams v Carey case last week (May 18) that the company, which was explicitly acting on an execution-only basis, was not liable for a member’s choice to invest in a high-risk investment.

The Fos's decision was made before the judgment in Adams v Carey had been handed down. The ombudsman did not deem it right to wait for the judgement due to it being “a different case” and “not party to those proceedings”.

It is likely the case will be subject to appeal.

The Fos case

The client, who the Fos called Mr T, complained against Carey, via a claims management company, about his transfer to a Sipp and the investment made following said transfer.

According to the judgment, released on April 8, the problem first arose when Mr T was contacted by an unregulated business based in Spain, called Commercial Land and Property Brokers (CL&P), and was told he could get a much better return on his pensions if he transferred to a Sipp and invested in Store First. 

Mr T signed a letter of authority, giving Carey permission to deal directly with CL&P in relation to his pension transfer, on September 1, 2011. He signed an application form for a Carey Sipp the same day.

In summary, Mr T argued Carey had acted “negligently and in breach of its duties” by accepting his application from CL&P as this business was unauthorised and was promoting unregulated investments. 

He said Carey should have identified the risks involved with accepting business from the introducer and should have realised the subsequent investment was not appropriate for Mr T.

Carey argued it did not provide any advice to clients in relation to the establishment of a Sipp, transfers in or the underlying investments.

It also said Mr T had invested on an execution-only basis and this had been made clear in communications with him, the documentation issued to him, and the paperwork he read, signed and agreed to. 

Carey pointed out under the Financial Conduct Authority’s conduct of business sourcebook it was obligated to execute investment instructions as this effectively said once the Sipp has been established, it is obligated to execute the specific instructions of its client. 

However, in the circumstances ombudsman John Pattinson said the crux of the issue in this complaint was whether Carey should have accepted the Sipp application from CL&P and established Mr T’s Sipp in the first place.