In an 81-page decision dated February 26, the ombudsman concluded Carey, which now goes by the name of Options, should have refused to accept the business from the introducer, which included a high-risk unregulated investment.
The Fos said had Carey acted in accordance with its regulatory obligations and best practice, it is “fair and reasonable” to conclude that in the circumstances it should not have accepted the client’s application from the introducer to open a Sipp at all.
The ombudsman found Carey had been introduced to hundreds of clients by the same introducer.
The Fos's decision came before the Court of Appeal’s decision last week (April 1) to side with claimant Russell Adams and find against Carey Pensions, overturning a previous High Court ruling in a landmark decision.
Carey originally won the case with claims against the Sipp provider being dismissed on all grounds in May 2020.
But the Court of Appeal unanimously overturned that ruling and found Adams was advised, in contravention of the Financial Services and Markets Act 2000, by CLP Brokers, an unregulated introducer.
The Fos case
The client, who the Fos called Mr S, complained via a claims management company about his transfer to a Sipp and the investment made following said transfer.
According to the judgment, released on February 26, the problem first arose when Mr S was cold-called by unregulated introducer Commercial Land and Property Brokers (CL&P) and told he could get a much better return on his pension if he switched it to a Sipp and invested in high-risk Store First.
Mr S signed a letter of authority, giving Carey permission to deal directly with CL&P in relation to his pension transfer, in April 2012. He signed an application form for a Carey Sipp soon after and £42,477 was sent to Carey in September.
In October 2012, Mr S signed a document to invest £39,000 in Store First and confirmed he was fully aware that this investment was an alternative investment and as such was high risk and/or speculative.
He also confirmed he was aware Carey acted on an execution-only basis and had not provided any advice.
Mr S said he had had no plans to change his pension and invest but was cold-called by CL&P and was promised 12 per cent guaranteed returns for three or five years.
He also received a £2,000 “cash back” incentive from CL&P after the investment was made.
Mr S argued that he had suffered a loss from the Store First investment and that Carey should compensate him for this loss.
But 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 S 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.
It also said it undertook due diligence on CL&P and this did not reveal any reason why Carey should not accept introductions from CL&P, at the time of Mr S’s investment.
But when the Fos asked Carey to provide information about its relationship with CL&P, it emerged 551 clients had been introduced to Carey via CL&P.
Ombudsman’s findings
Ombudsman John Pattison said Carey had failed to conduct sufficient due diligence on CL&P and should have realised it should not accept business from the introducer, and ended its relationship with it before Mr S’s application was made.
Pattison came to this conclusion because he said Carey ought to have undertaken “sufficient enquiries” into CL&P to understand who its directors were, and checked the FSA’s warning list as part of its due diligence.
Had it carried out these checks it would have discovered that CL&P’s director was Mr Terence Wright, and that he was on the FSA warning list, Pattison said.
He said: “CL&P’s director Mr Terence Wright’s presence on the FSA warning list should have led Carey to conclude it should not do business with CL&P. I note this is a view which was held by Ms Hallett when she gave evidence to the court during the Adams v Carey hearing.”
But Carey said the FSA notice was not entered onto World Check (the checking service it used) until October 2011 - after Carey had carried out its checks on CL&P’s other representatives and after it had started accepting business.
Therefore, it said if it had run a check on Mr Terence Wright at the outset, this would not have revealed his entry on the FSA’s warning list.
Pattison said that as a regulated Sipp operator, Carey should have been mindful of the FSA’s list of alerts and, in compliance with its regulatory obligations, it ought to have checked this list before accepting business.
In addition, had it done sufficient due diligence, the provider would have found the introducer was acting “without integrity” as it had not told it the truth when asked about cash incentives.
In terms of due diligence on the Store First investment, Pattison said Carey should not have accepted either the application for Mr S’s Sipp from CL&P or the investment.
This is because there were a number of things about the marketing material which ought to have given Carey “significant cause for concern” and that there was a significant risk that potential investors were being misled.
In conclusion, Pattison said that it would not be fair to say Mr S’s actions mean he should bear the loss arising as a result of Carey’s failings.
Although Mr S was warned of the high-risk nature of Store First and declared he understood that warning, Carey failed to act on, nor did it share significant warning signs with Mr S so that he could make an informed decision about whether to proceed with the investment.
He said: “In these circumstances, I am satisfied that Carey should not have asked him to sign the indemnity at all. And, for the reasons I have set out, I am satisfied that the application should never have been accepted in the first place, or alternatively, Carey should have put a stop to the transaction at a much earlier stage in the process.”
As a result, he ordered the firm to return Mr S to the position he would now be in if he had not transferred his pension.
It must also take ownership of the Store First investment if possible and pay £500 for the trouble and upset caused.
amy.austin@ft.com
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