FOS upholds complaint against IFA over Arch cru
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The Financial Ombudsman Service has provisionally upheld a complaint against an IFA who recommended clients to invest in Arch cru, and ordered the adviser to pay redress.
In a provisional decision published on the FOS website today, ombudsman Tony Boorman (pictured) says he decided to uphold the complaint on the basis that the recommendation to invest in Arch cru was not suitable for the clients’ individual circumstances.
The IFA, who is not named in the decision, has been ordered to pay the clients redress. The redress payable is to be calculated based on the return of their original £8,000 investment, less withdrawals or distributions already paid, plus a return of Bank of England base rate plus 1 per cent as the date of the FOS’ final decision.
The amount the clients can get from the FSA agreed compensation scheme will then be deducted to give the total redress amount.
The FOS says if the £54m compensation package agreed by the FSA, Capita, BNY Mellon Trust & Depositary and HSBC Bank is withdrawn before December 31, 2012, the IFA will have to pay the same level of redress that would have been available under the scheme within 28 days.
The clients, who are only identified as Ms P and Mr M, sought investment advice from the IFA in early 2008. They had recently sold a property and held about £50,000 in various savings accounts.
Ms P and Mr M were hoping for better returns than they were currently earning on their deposit account, and hold some cash in order to reducing their mortgage.
Acting on their IFA’s advice they invested £4,000 each into the CF Arch cru investment portfolio fund, which was then placed in a stocks and shares Isa.
They complained to their IFA over concerns about forecasted losses when the fund range was suspended in March 2009.
Unsatisfied with their IFA’s response, who told them the advice had been sound based on the research he had been able to carry out, they referred their complaint to the FOS.
An adjudicator recommended the complaint should succeed, which was contested by the IFA. The IFA argued that the investment accounted for 17 per cent of the overall portfolio, with the rest held in cash.
The IFA also argued the issue with Arch cru stems from incorrect valuations by the auditors and actuaries, which was not something an IFA could have established with reasonable due diligence. The IFA also said it trusted Capita to do its job as authorised corporate director of the funds.
In his provisional decision, Boorman acknowledges that the Investment Management Association classed the fund as cautious managed, but says the IFA should have known this was not the same as ’low risk’.
Boorman says: “I am satisfied that this recommendation exposed the consumers to significant risk and not one which their circumstances suggest they were willing to take. The asset holdings are, in my opinion, non-standard and potentially specialist. This should have alerted the IFA to the fact that such specialist funds were unlikely to be suitable for unsophisticated investors such as Ms P and Mr M.”
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Readers' comments (21)
Kevin Archer | 22 Nov 2011 2:22 pm
Feel sorry for the IFA. How many clients want a "better return for their bank deposit money" Most do!
How many client's also have short memories and remember a whole conversation, yet can't remeber the risk warning bit. Most do?
About time we had central unit to record all these FOS judgements to ensure WE are also treated fairly.
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Bryan Jones | 22 Nov 2011 2:25 pm
...hoping for better returns than they were currently earning on their deposit account.
For crying out loud. Aren't we all dearie?
What would the client have said/did say in response to the correct advice..."you ain't got enough to be playing around with investments other than a bank deposit"?
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Anonymous | 22 Nov 2011 2:29 pm
Its a dark dark day if this is upheld. 17% seems a fair risk to me, but then show me a regulaor who can forecast the future.
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David Oswald | 22 Nov 2011 2:50 pm
re - Anonymous | 22 Nov 2011 2:29 pm
Come to that, show me a fair regulator !
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Anonymous | 22 Nov 2011 2:59 pm
This is bonkers. When you invest money for a client and use an asset allocation model, the assets you use in the portfolio will have varying risk, but it is the over blend that gives the final risk. It looks like the FOS have ignored this overall blend and just looked at one part of the clients portfolio.
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Martin | 22 Nov 2011 3:03 pm
Capita et al (including FSA) must be laughing all the way to the bank here.
They screw up the investment, mislead the distributors and then stich up a 'compensation' deal that leaves them still in pocket.
Shameful.
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Anonymous | 22 Nov 2011 3:09 pm
This decision is an affront to fairness and, quite frankly, it stinks of political expediency and behind-doors agreements.
In addition, it signals a willingness to depart from the common law concept of 'causation', in that it holds the IFA wholly culpable, merely because it cannot consider a dispute between an adviser and a fund manager.
No doubt, there will be much relief and merriment in Canary Wharf today, although it is with much sadness that we should mark the passing of any claim that the FOS ever had to objectivity and independence.
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Anonymous | 22 Nov 2011 3:37 pm
This is an appalling abuse of power and reeks to high heaven of manuipulation of control.
God help us all , investors and IFA's alike
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Gerry Cooper | 22 Nov 2011 3:38 pm
@ Kevin Archer
"How many client's also have short memories and remember a whole conversation, yet can't remeber the risk warning bit."
I'm not trying to be a clever dick, but surely that's the point isn't it? If the IFA in question had believed it was the right investment for the client, and had given those warnings, and of course covered his arse by putting it all in his report, he'd have been OK.
If though he didn't give the right warnings, then he was wrong, and is now paying the price.
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Edward T | 22 Nov 2011 3:57 pm
"The asset holdings are, in my opinion, non-standard and potentially specialist"
.. then how did this end up in an arrangement entitled 'Cautious'...
Will the IMA introduce radical measures to really tackle the issue of fund labels, and make the changes required for consumers to understand the risk they are taking.
IFA's need protection too...
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