SIPPMay 29 2020

Carey loses due diligence case at Fos

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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. 

Mr Pattison was of the view that if Carey had carried out sufficient due diligence, it ought to have known CL&P was going to be “doing more than merely introducing consumers to Carey’s Sipp”. 

Mr Pattison said: “I do not consider that Carey acted with due skill, care and diligence, organised and controlled its affairs responsibly, or treated Mr T fairly or acted in his best interests by accepting Mr T’s business from CL&P. 

“To my mind, Carey did not meet its regulatory obligations, and allowed Mr T to be put at significant risk of detriment as a result.”

He pointed out that he was not saying Carey should have assessed the suitability of the investment or the Sipp for Mr T as he accepted the provider had no obligation to give advice to Mr T, or otherwise ensure the suitability of a pension product or investment for him. 

But the ombudsman concluded Carey should not have accepted the business from CL&P. 

Mr Pattison said: “It failed to treat Mr T fairly or act with due skill, care and diligence or take reasonable care to organise and control its affairs responsibly by doing so. And, in the circumstances, it is fair and reasonable for Carey to be held responsible for its failings.”

As a result, he ordered the firm to return Mr T to the position he would now be in if it were not for “Carey’s failure to carry out adequate due diligence checks” before accepting Mr T’s Sipp application from CL&P.

It must also pay £500 for the trouble and upset caused.

Adams v Carey case

The High Court case saw claims against Carey dropped on all grounds.

Former client Russell Adams had claimed Carey Pensions mis-sold him a Sipp. He and his lawyers had accused the Sipp provider of using a Spain-based unregulated introducer to facilitate investments in Store First unit pods, which were unsuitable and subsequently deemed “worthless”.

Mr Adams had signed an execution-only contract, but his lawyers argued regulatory principles around treating customers fairly meant he should not have been allowed to open the Sipp without advice.

amy.austin@ft.com

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