Falcon has been told it gave unsuitable advice to a client who invested 8 per cent of their pension in a property fund.
A client, referred to as Mr D, complained about advice given by The Falcon Group Ltd to invest £83,000 of his pension fund in a Stirling Mortimer fund.
In November 2006 Falcon listed Mr D’s assets, apart from his pension fund and excluding his house, as including shares in own business worth £500,000 to £1m, other property valued at £230,000 plus savings and other deposits totalling £78,000.
His pension fund was then worth around £1m and included the commercial property used by his business, which was valued at around £760,000 with a mortgage of £37,000 outstanding.
In a final decision, ombudsman Lesley Stead thought Mr D was willing, and in a position, to take a degree of risk with some of his pension fund and while the Stirling Mortimer investment added to potential liquidity problems, the amount invested was only a small part of his pension fund.
But she didn’t consider it wise to add another property based asset to a Sipp portfolio which, because of the business property used by Mr D’s business, was already heavily weighted towards commercial property.
She said most advisers would have recommended diversification and the investment in Stirling Mortimer, a professional investor scheme, was not suitable because it increased his exposure in commercial property.
In 2006 Falcon recorded Mr D, then aged 54 and running his own business, was prepared to take 50 per cent medium/high and 50 per cent high risk with the investment of his pension fund.
It also recorded he was prepared to take a medium degree of risk with his other savings and investments.
So in February 2007 Falcon advised Mr D to invest in Stirling Mortimer, a professionally managed overseas investment scheme focused on property in the leisure industry.
Ms Stead ruled Mr D’s overall wealth was probably overstated but agreed his pension fund was worth around £1m at the time of advice.
As the main asset was the business premises, the pension fund was largely illiquid but he didn’t have any intention in 2007 of retiring and so needing to call upon the illiquid asset.
The investment with Stirling Mortimer represented around 8 per cent of Mr D’s pension fund – and a smaller percentage of his overall wealth.
Lighthouse, which now owns Falcon, didn’t agree with the ombudsman pointing out Stirling Mortimer was a significantly different type of property from the one contained in the pension.
But Ms Stead still concluded the advice to invest in Stirling Mortimer wasn’t suitable.
She said: “My aim is to put Mr D as close as possible into the position he’d probably be in now if he’d been given suitable advice. I think he’d have invested differently. I can’t say precisely what he would have done differently.