The complaint came from a Mr H, who said that The O’Rourke Partnership Limited recommended and arranged for him to make an unsecured loan to a third party from funds he held in his SIPP.
An investigator reviewed the complaint and considered the advice was “unsuitable”. The FOS reviewed the ruling and has now agreed.
O’Rourke Partnership “had a duty to ensure that the loan transaction was suitable for Mr H” but it was not appropriate and was “too risky”, the ombudsman Keith Taylor concluded.
Mr H was advised to set up a SIPP by O’Rourke Partnership in 2011. Later that year he was introduced to a third party by the firm and he made a loan of £29,325. The loan was to be over a short-term at a high rate of interest. The loan has not been repaid and Mr H has lost his money, the FOS reported.
O’Rourke Partnership (TOPL) should not have recommended the loan, the investigator ruled.
Keith Taylor, ombudsman, concluded: “I am satisfied that but for TOPL’s involvement, I don’t think Mr H would have made the unsecured loan.”
Mr Taylor wrote in his report: “An unsecured loan agreement was established between the SIPP trustees on Mr H’s behalf and the loan recipient. This was witnessed by a representative of TOPL.
“There is no letter of recommendation. But Mr H says the loan transaction was suggested and arranged by TOPL. The loan agreement was witnessed by TOPL and so clearly it was fully aware of it.
“I consider that the loan transaction, with the loan unsecured, represented a higher level of risk than Mr H was willing or could afford to take. I think TOPL had a duty to ensure that the loan transaction was suitable for Mr H. But I don’t think that it was. It was too risky for Mr H particularly given that the loan represented such a significant proportion of his SIPP.
“An unsecured personal loan exposes the money to many risks – not only that the interest might not be paid but that the capital itself would be lost if the borrower finds themselves unable to meet the repayments.
“As it’s unsecured, there is also no security which can be sold to repay the capital. With a single loan, there is also no spread of risk across many different arrangements as might be the case with, say, peer to peer lending. But even with this type of spread, unsecured loans represent considerable risks. And there’s no evidence that Mr H was in a position to take that kind of risk.
“For these reasons, I uphold this complaint. I’m satisfied that that had it not been for TOPL’s advice Mr H would not have agreed to the unsecured loan. I think he would have invested differently.”
He added: “No doubt this advice and the failure of the loan will have caused Mr H worry and anxiety. I agree that TOPL should pay him £200 for this distress in addition to his financial loss.”