FOS rules Arch Cru too risky
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The Financial Ombudsman Service has upheld a complaint against an adviser who it deemed to have inappropriately placed a “low to medium risk” client into the CF Arch cru investment portfolio.
An FOS decision document, seen by Money Marketing, says the client’s £100,000 investment exposed the capital to a risk greater than the client was prepared for. The FOS says the client’s low to medium-risk profile did not match the CF Arch cru investment portfolio, given the funds’ 55 per cent exposure to private equity. According to the FOS, a medium-risk investment should hold no more than 5 per cent in private equity.
The FOS also challenges whether the classification of the fund as “a low to medium-risk investment” because it is positioned “firmly within the cautious managed sector” is correct, due to counterparty risk increasing risk to the fund. The fund was positioned in the IMA cautious managed sector.
The adviser has been asked to return the initial investment as well as capital growth equivalent of 1 per cent more than Bank of England base rate compounded from the date of the investment to the date of the letter less any withdrawals and any money recovered from the sale of the fund’s underlying investments.
The Arch cru fund range was suspended due to liquidity concerns on March 13, 2009. According to Capita estimates, the investment portfolio has fallen 40 per cent from March 2009 to September 2009.
Regulatory Legal partner Gareth Fatchett says: “This is a worrying development for firms who relied on the IMA cautious rating.
“This case sets a dangerous precedent for firms who risk profiled the portfolio fund as cautious. It would be naive to think FOS will not use the methodology as a precedent.”
The IMA says it cannot comment on individual funds.
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Readers' comments (3)
Dathan Steele | 17 Dec 2009 2:51 pm
If its true what the article says and that the FOS have said that a CM fund 'should hold no more than 5 per cent in private equity' then I think we need to look into a lot of different funds.
To my knowledge quite a few CM/BM/AM funds hold PE, although they usually do it through buying into an Investment Trust (Cru did it through Cell companies in the Channel Islands).
If a fund manager running a CM fund happens to be holding 7% of his fund in an IT which invests in PE then this would be seen as too high risk by the FOS in the event of a complaint.
The issue here is that a fund factsheet will usually show a funds top ten longs, but if the fund is widely diversified then a small (but still over 5%) holding in an IT might not be given....
This could have the result of damning the adviser, without him/her knowing about it. I wonder if the subtext to this is the FOS attempting to get CM funds back to what they once were, equities, bonds & other FI, property and money market instruments...... thus stifling the more progressive UCTIS permissions....
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Anonymous | 2 Feb 2010 2:06 pm
All our savings £100,000, are invested in Arch Cru, please can you tell us will we be able to claim compensation? If so, will we get most or all our money back?
Our Financial Adviser tells us we will get the money back from Capita, is this correct?
We do not know were to go for free legal advise, as we have no other money, only our pensions.
We have been with our Financial Adviser for 20years, so feel very let down.
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Anonymous | 29 Apr 2010 6:09 am
To anonymous of 2 Feb 2010. You should contact the Financial Ombudsman Service 0845 0801800 if you feel you were mis-sold, or perhaps told it was a cautious investment.They will help you get your savings back.The more people that do the better.
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