The Financial Ombudsman Service has ruled against Portafina and Greystone Financial Services in two recent separate cases.
A client, referred to as Mr O, complained after he was advised to transfer his rebate-only personal pension to a SIPP by Portafina. Most of the funds were then invested in unregulated collective investment schemes (UCIS) that Portafina recommended.
Mr O, a factory worker earning a modest income and with very limited pension rights, says that he wanted “low to no” risk, but the investments were high risk. His attitude to risk was recorded as “moderately cautious”.
Portafina claimed that its advice to invest 85% of the SIPP funds in UCIS was ‘reasonable’. It had carried out “extensive due diligence on the funds and they were likely to provide a return to Mr O”.
The FOS adjudicator agreed with the client, saying the advice was ‘unsuitable’.
The four UCIS were “all speculative and involved investing in very specialised areas”, the FOS concluded, adding they “presented significant risks to capital” and were “too risky for Mr O and the proportion of his pension invested in UCIS was too high”.
Ombudsman Keith Taylor has provided the firm with a method to calculate how much compensation they should award him.
He said: “The advice was unsuitable for him. I’m not satisfied that there was anything in Mr O’s circumstances in 2011 that should have led Portafina to reasonably believe he was a suitable consumer for this type of investment.”
In the second case, Mr P, a Greystone client since 2001, complained that the funds he was advised to invest in were unregulated collective investment scheme (UCIS) funds and he has suffered a financial loss which cannot be recovered.
He also complained about the advice he received from Greystone at different times to invest in other highly geared property funds. These complaints are being looked at separately by the FOS.
Mr P invested sums from his SIPP of £50,000 and two more of £20,000 into various funds before 2007 on the advice of Greystone. In May 2007 Greystone advised Mr P to invest £25,000 of his SIPP funds in the Rock Industrial UK Property fund and to also invest £25,000 in the Phoenix Spree Deutschland fund.
But the FOS found that there was no record of any fact find completed at the time of the advice and the only one available prior to 2007 was dated in 2001, which just recorded was that Mr P was aged 51, was married and had no dependants. There was an updated Fact Find Risk Assessment Update sheet completed in July 2007 after the two investments had been made in May 2007.
Mr P’s risk profile was assessed at this time as ‘cautious to balanced’ for lump sum investments and ‘balanced to adventurous’ for regular savings.
Both funds were recommended as Mr P was recorded as wanting more exposure to property within his SIPP portfolio. Mr P was familiar with property as an asset class and was comfortable with it.
Greystone failed to record Mr P’s circumstances, needs and objectives, the adjudicator concluded.
Greystone disagreed and said the funds were suitable for a realistic or balanced risk investor like Mr P. The firm disagreed with the funds’ high-risk classification reached by the adjudicator. It argued that the loss was not caused by the advice but by the unprecedented fall in the commercial property market.
Bearing in mind that Mr P’s attitude to risk was assessed in July 2007 as being ‘cautious to balanced‘ for lump sum investments, the FOS said it was not “unreasonable to assume a similar attitude to risk when Mr P was advised to invest in these two property funds in May 2007”.
Ombudsman Adrian Hudson said that by May 2007 Mr P had already been advised to invest nearly 80% of his SIPP in high risk UCIS property funds.
He said: “In my opinion the advice that he received to invest yet more of his SIPP in UCIS funds was inappropriate. For an individual like Mr P with a cautious to balanced attitude to risk at the time in my opinion to have such a high percentage of his SIPP funds invested in UCIS funds was inappropriate.
“There is no evidence that Mr P was advised of the high level of gearing and the possible consequences of this or that he was treated as an insistent customer. In my opinion had he been told of the potential risks of investing part of his SIPP in the Phoenix fund and the Rock Industrial fund he would have not have done so.”
The FOS told the firm it must put Mr P into the position he would probably now be in – or as closely as possible - if he had been given suitable advice.