Sipp provider told to compensate over risky investments

Sipp provider told to compensate over risky investments

A Financial Ombudsman Service (Fos) adjudicator has ruled in favour of five clients who in total lost close to £100,000 after investing their pensions in unregulated assets through self invested personal pensions (Sipp).

In five separate cases a Fos adjudicator sided with claimants who invested in Ethical Forestry, a scheme offering returns of up to 15 per cent from tree plantations in Costa Rica.

The scheme is currently investigated by the Serious Fraud Office and according to Companies House the company Ethical Forestry Ltd is in liquidation.

The Fos said Sipp provider Guinness Mahon had failed in its due diligence of the introducer involved in the sale and should have refused to take the business.

It told the Sipp firm to pay compensation to the claimants by obtaining the transfer value of their previous pensions had they not been transferred into the Sipp.

The ruling was made at the Fos adjudication stage, meaning the parties involved can accept or appeal the outcome. On appeal, the case gets put forward to the Ombudsman for final consideration.

Guinness Mahon told the Fos the sales were made on an execution-only basis. The set up included an unregulated introducer, several IFAs who were said to have signed off the applications, and the Sipp provider.

Introducer Avacade, which is currently being pursued by the Financial Conduct Authority for allegedly giving advice without authorisation, had offered the clients free pension reviews, before passing them on to Guinness Mahon as execution-only business.

A representative for Avacade could not be reached for comment.

Before accepting the business Guinness Mahon had asked regulated IFAs to 'sign it off', the Fos said. The Sipp firm had also checked samples of the pension reports given to clients.

But the Fos said these reports should have given it cause of concern because they indicated Avacade was giving advice. They were also not balanced, Fos said, and had the clear aim of getting the client to transfer.

According to the Fos, Guinness Mahon accepted 230 Sipp applications through Avacade between May 2014 and September 2015.

It found the IFAs had not carried out appropriate checks on the applications and Guinness Mahon had not carried out sufficient due diligence on the introducers they were working with.

It also found while Guinness Mahon (GMTC) had carried out some due diligence on Avacade, including a site visit and company overview, this was not enough in the circumstances, where investments were placed in high risk assets overseas with little or no diversification away.

Guinness Mahon had claimed it had had no introducer relationship with Avacade but the Fos found this difficult to believe given the sheer number of new business that had come through this channel.

The Fos also criticised the lack of a formal agreement between Guinness Mahon and the intermediaries, which it said would have been good practice. 

It said: "Had GMTC conducted sufficient checks, it would be in a position where it had clear evidence that Avacade was likely providing advice, carrying out a regulated activity when it wasn't authorised to do so.