Your Industry  

Execution-only letter fails to save adviser

Execution-only letter fails to save adviser

An adviser has been told to compensate an “execution-only” client who it assisted with a pension transfer to invest in Harlequin properties.

Around July 2009 the client, a director of a property management company who is referred to as Mr E, was contacted by a sales agent for Harlequin properties. 

Mr E, who worked in financial services from the late 1980s to 2001 in senior sales management roles, knew the Harlequin sales agent as they had previously worked together. 

Article continues after advert

The agent thought Mr E, who had taken the financial planning certificate papers one and two but hadn’t advised clients, might be interested in investing in Harlequin and explained how this could be done through a Sipp.

Mr E said the agent told him that he had an arrangement with a financial adviser at firm Grosvenor who could arrange a Sipp for Mr E to invest his pension fund through. 

When the Sipp was opened Grosvenor produced a letter to Mr E stating in the normal course of business the intermediary would have given the client a recommendation with a letter of suitability. 

The letter stated: “In this case, however, you have neither requested, nor did I give you, any advice concerning the suitability of the above contract. 

“This type of transaction is known as execution-only, and you understand that when buying a contract under these terms, you will not benefit from some of the regulatory protection provided when authorised advice is given, and you may have no right to redress should the contract turn out to be unsuitable.” 

Grosvenor charged Mr E up-front commission of 3 per cent along with annual commission of 0.5 per cent for its work.

Mr E’s pension fund of about £38,900 was transferred to the Sipp at the start of October 2009 and £31,500 was invested in Harlequin at the end of November 2009. 

By September 2013 Mr E’s investment was valued at £1 and, according to the ombudsman, it is likely he has lost all of the original money he invested. 

Mr E received a payment of £2,000 for recommending a friend invest at the same time as him through the same Harlequin sales agent. 

Despite the fact Mr E admitted that the adviser told him throughout that he wasn’t being advised on the investment, the complainant said he thought speaking to an adviser provided him with some protection that the investment was secure.

The Financial Ombudsman Service upheld Mr E’s complaint and ruled the adviser had a duty to act honestly, fairly and professionally and in line with Mr E’s best interests. 

Ombudsman Benjamin Taylor said: “I don’t accept that Grosvenor has provided clear and credible evidence that this was an execution-only transaction. 

“The letter provided by Grosvenor dated 22 September 2009 which refers to the transaction as being execution-only is, importantly, not signed by Mr E. 

“This was a high risk, highly geared, off-plan, illiquid investment.”