The Financial Ombudsman Service has ordered an adviser to pay his client the maximum compensation amount of £150,000, after giving unsuitable advice to invest the majority of his pension fund into a Ucis.
The client, who the Fos called Mr E, complained about advice he was given by Stuart Binns & Associates to invest a large part of his self-invested personal pension in a high-risk and highly geared commercial property portfolio.
As Mr E has since passed away, his complaint is now being handled by his son on behalf of both his father and mother, who is the sole beneficiary of the Sipp.
The Fos agreed the adviser had given unsuitable advice and that Mr E would have invested differently had he been aware of all the risks.
It awarded the claimant the maximum sum of £150,000 cautioning him to seek legal advice in case there is more to be gained.
From 1 April, Fos's limit increased to £350,000 but only for complaints about actions by firms after that date.
The problem first arose in 2002 when Stuart Binns advised Mr E to transfer his four personal pension plans into a Sipp, with Mr E acting as trustee.
After taking his tax-free cash Mr E was advised by the firm to invest the remaining money in three funds operated by Close Property Investment.
As such, £100,000 was invested in the Healthcare and Leisure Property Fund (HLP); £100,000 in the Capital Appreciation Trust (CAT); and £200,000 was placed in the Active Commercial Estates Trust (ACE).
In 2006, Stuart Binns wrote to Mr E explaining the HLP fund was slow to perform so it recommended Mr E switch to a Close Property Investment Portfolio fund.
It also explained that the board of the CAT fund had decided to sell and that the funds would be available for reinvestment shortly. They were disinvested in December 2006. The ACE fund was retained.
Stuart Binns had advised Mr E in 2006 that he should have a complete review of the asset allocation. It suggested management of the fund by a DFM and it recommended Firm S, having earlier advised Mr E that it was no longer the job of an IFA to manage client investments; this should fall to a DFM.
It was also agreed he would switch to another Sipp provider with lower costs.
As a result, the HLP fund was encashed on October 26, 2007 and the ACE assets were re-registered to the new Sipp provider in November 2007.
But by January 2008 the ACE fund was suspended.
Mr E decided to file a complaint with the Fos against both the DFM and Stuart Binns.
The complaint against the DFM was deemed to have been made too late under Fos rules and so could not be considered but there was evidence that Mr E had initially raised concerns about the advice he received in 2010, within three years of the ACE fund being suspended, therefore this claim was deemed within time.
In the case against the adviser the adjudicator concluded that it was not suitable for a large part of Mr E’s pension to have been invested in the property funds as this was not in line with the cautious approach he wanted to take.
She also did not think Stuart Binns had been permitted to promote such funds to Mr E, as he was not a high net worth individual or a sophisticated investor.
Stuart Binns argued the way Mr E’s attitude to risk was assessed was different in 2002 than it would be today and that he was a retired solicitor so should understand “detailed information” on his investments.
Ombudsman view
Ombudsman Lorna Goulding said Stuart Binns had a duty to provide Mr E with suitable advice but found it had not carried out a thorough fact-finding exercise to assess Mr E’s circumstances.
Ms Goulding said: “While this wasn’t a regulatory requirement, I think this would be normal business practice to ensure it knew its customer, particularly when considering something as important as Mr E’s future pension provision.
“It also doesn’t appear that Stuart Binns undertook a formal assessment of Mr E’s tolerance and capacity for risk in relation to his pension.
“I note it says the way risk was assessed was different in 2002 to how it’s done now. But while there may be different methods a financial business can now use, making such an assessment has always been a key factor when giving financial advice.”
All three of the property funds were unregulated collective investment schemes and there were rules in place at the time restricting to whom such investments could be promoted or recommended.
The Fos found Stuart Binns had not undertaken the relevant steps to ensure it could promote a Ucis to Mr E.
Ms Goulding said she had not seen evidence Mr E had invested previously in high risk products such as Ucis and said his former occupation would not have given him knowledge to “adequately understand the risks associated with investing in unregulated pooled investments”.
With regards to the funds, Ms Goulding said they were “speculative in nature” and “required a number of factors to be favourable in order to be successful”, therefore came with a significant degree of risk.
She therefore concluded that Mr E was given unsuitable advice and would have invested differently if advised otherwise.
Therefore, to compensate Mrs E - the beneficiary - fairly she ordered the adviser to compare the performance of each of Mr E's investments with that of a benchmark.
The firm must pay the amount produced by this calculation up to a maximum of £150,000 plus any interest.
The ombudsman also recommended the firm pay the client if the amount produced by the calculation exceeds £150,000, although this is not binding.
Ms Goulding noted: “It is unlikely that Mrs E can accept my decision and go to court to ask for the balance. Mrs E may want to consider getting independent legal advice before deciding whether to accept this decision.”
amy.austin@ft.com
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