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Advisers hit out at FOS approach to execution-only


A decision by the Financial Ombudsman Service forcing Tenet to pay compensation to a group of Sipp investors has raised concerns about how the FOS treats execution-only work carried out by advisers.

The FOS ruled that Tenet was wrong to help nine clients open new Sipp accounts to invest in an unregulated scheme for a golf course in Spain without giving them advice.

In 2010, the firm’s clients transferred all their pension savings into property investments through Resina Golf Limited in Spain, only to find later they owned land adjacent to the golf course.

Tenet claimed the investments were unregulated and the clients had invested on an execution-only basis, but the FOS ruled Tenet should have warned the clients that the scheme was an unsuitable investment.

Ombudsman Terry O’Connor, in his provisional decision notice, says firms cannot avoid their duty to give suitable advice by limiting the scope of advice they provide.

O’Connor says: “I am not persuaded the transfer and the Sipp opening were in reality on an execution-only basis. I accept Tenet’s point that they gave no advice. But in my view, they should have given advice.”

Investment Quorum chief executive Lee Robertson says while his business does not offer execution-only advice, for those that do, both the adviser and the client should be protected.

He says: “To come back later and say that while the client insisted they didn’t want advice you should have given it anyway is a bit disingenuous.

“If execution-only is of no protection to the adviser, then just do away with it completely rather than letting advisers do it thinking they are protected. Why have it as a concept at all if the concept is not robust enough in law or in judgment?”

“If execution only is of no protection to the adviser, then just do away with it completely”

Robertson adds: “There is a principle of execution-only that the regulator seems to allow and yet the ombudsman doesn’t appear to be allowing it. So advisers are caught in this grey area where the regulator will say we have given enough guidance on it but the ombudsman will go ahead and make their own rules anyway.”

Echelon Wealthcare managing director Alastair Rush says there are wider moral and ethical implications for advisers to consider.

He says: “My business card says adviser so I am here to advise people. It is up to me whether or  not I want to compromise what I am here for.

“If something is bad for a client, my advice must be not to do it. I should not just say ‘I don’t think you should do it but I’m going to let you do it anyway by facilitating it’.”

Financial & Technology Research Centre director Ian McKenna says the Tenet decision only adds to his belief that the regulatory system is not fit for purpose.

He says: “This is a classic case of a nanny state attitude. The ombudsman behaves like it is omnipotent. That does not help anybody. Their actions are so inconsistent.”

In two of the four cases referred to the FOS, Tenet has been ordered to reimburse the complainants’ pension plans in the event of a loss. If Tenet cannot pay into the pension plans then the complainants should be paid directly.

Tenet has also been ordered to pay the two complainants £250 for any concern and worry they suffered. Details of the other two complainants have not been published.

Tenet group regulatory director Gill Davidson says: “We never comment on individual cases,  although we recognise why the language used by the ombudsman will attract interest and concern from advisers.

“Whenever we consider a decision to be incorrect, particularly with regard to the assessment process by the FOS, we will review our options  and take steps to protect our advisers, whilst recognising the importance of appropriate consumer outcomes.”

The FOS decision:

  • Tenet should have exercised a duty of care to the complainants in considering the suitability of transferring the pension to a Sipp to make an unregulated investment
  • Tenet should have exercise better judgement about the investment and its suitability for the complainants
  • The complainants did not have sufficient knowledge to enter the transaction on an execution-only basis and Tenet should have done more to increase their understanding



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There are 22 comments at the moment, we would love to hear your opinion too.

  1. Compliance Thought 16th May 2016 at 12:33 pm

    As usual, the devil is in the detail and the previous article acknowledged that the adviser was aware the SIPPs were only being set up to facility the investment into the Golf Course. If they have tried to deny the adviser knew and they were unrelated transactions, then to have 4 clients all come in specifically requesting a SIPP to invest in the same UCIS could be pushing the realms of credibility.

    Was this more the case that the adviser knew Tenet wouldn’t sign pension transfers off which were going to invest in a Spanish Golf Course and thought this would be a way of getting the cases ‘through compliance’? If it was then it has certainly backfired, I wonder how much Tenet’s excesses are and how much this will cost the adviser.

  2. A client must be absolutely clear when they are acting on my recommendation (i.e. advised) and when they are acting on their own, i.e. execution only. When they are advised they are covered by the FSCS, but not so when they are execution only. So, what is the problem?
    The problem is that neither the FCA nor FOS understand or, to put it more clearly, they just absolutely do not understand. The result of this decision is that clients aren’t allowed to act on an execution only basis at all as the concept isn’t recognised by the regulators.
    Please can the FCA advertise this fact as clients will not understand when I try to explain it to them. Please can the FCA also advertise that they think that no clients are capable of making their own decisions – we do need this to be clarified as many people are under the false impression that the regulator allows them to make decisions on their own.

  3. Soren Lorenson 16th May 2016 at 1:23 pm

    Whilst I dislike the regulatory system and FOS in particular I think their call is correct here. Execution only is for the kind of stuff that Hargreaves Lansdown does – people deciding to invest in authorised funds through SIPPs and ISAs. A client can choose their own funds and if they get it wrong then on their own head be it. However, they are investing in regulated products and funds so they have a fair degree of safety.

    If, as an adviser, you choose to facilitate something that is clearly high risk and very probably stupid, then you won’t get that through as execution only.

    In my opinion this is just as bad as the guys that sell the UCIS and all the other rubbish. Fortunately this time Tenet will be paying, but had he been directly authorised this would be falling on the rest of us.

    As advisers we need to take responsibility for the decisions that we allow our clients to make. If it is unsafe, let them make that decision elsewhere.

  4. I work on the principle that I accept execution-only business but that I always need to offer a duty of care to my clients and also to my employer. Some would argue that it isn’t execution-only if I am screening what I will accept, but I believe it is the most ethical approach. For example, I would probably accept an execution-only ISA from an experienced investor who wishes to take a bit of a punt with his/her annual ISA allowance. I would probably think it was foolish and irresponsible to set up a group SIPP scheme for a group of investors with little pensions knowledge who wish to invest in a Spanish golf course. Regardless of what went wrong, this has “minefield” written all over it.

  5. Julian Stevens 16th May 2016 at 2:01 pm

    The message here seems to be that the FOS refuses to recognise Exec Only or, if it does, then only to an extremely limited degree.

    I have a client of longstanding who’s had Parkinson’s Disease for a few years now and it’s getting steadily worse. She recently turned 65, is single and has an old S226 RAC with a 9% p.a. GAR. She also has a more modern plan on which I can get her an OM AR of probably at least 6%, maybe more. Almost every answer she gave on her Retirement Income questionnaire indicated aversion to any sort of risk. Initially, she didn’t even like the sound of a With Profits Annuity.

    Yet she’s constitutionally opposed to the idea of buying an annuity, allegedly on the grounds of VFM. From somewhere or other, she’s got hold of the expression “Income DrawDown” (even though she doesn’t really know what it is, how it works or the risks it poses) and now she’s fixated on that to the exclusion of all else.

    I’ve said okay, if it’s a concern, we can get you a Capital Protected Annuity which assures 100% VFM however long you live. But Income DrawDown (as opposed to a GAR of 9% p.a. and probably 6.5% p.a. underwritten) is emphatically NOT likely to be suitable and I think it extremely unlikely that my network would allow it.

    I’ve told the client that I will NOT transact the business on an EO or IC basis. She’ll have to go elsewhere ~ and she may get a shock when the other firm quotes her their fee (what d’you think ~ £500?) and reaches the same conclusion as I.

    But that’s the way the world’s gone, in no small measure thanks to the FOS.

  6. No idea whether it is the case here or not, but we have been approached in the past by people punting unregulated funds (especially pre-RDR as this advice was) and the conversation from them goes. “We will introduce you to lots of clients who want to invest in our fund, we know you aren’t allowed to recommend it, so how about you transfer the clients to a SIPP and don’t give advice on the funds and we’ll take it from there once the client is able to make the placements themselves. And here’s an introductory fee for your trouble, plus a tickle from the fund round the back door”. It always seemed a terribly risky way to do business (for both adviser and the client, the fund promoter would be fine thought…) and we never got involved.

  7. Julian Stevens 16th May 2016 at 3:01 pm

    SL ~ Tenet may have to pay initially but the member firm is legally bound to reimburse it.

    The key filter, I think, is whether or not the complainant/s had sufficient knowledge to enter the transaction on an execution-only basis and that comes down to the crunch question: “Do you understand just what you may be getting into here?”

  8. So, apparently the rules on execution only and insistent customers have not changed in many years. So how is it that cases like this are only just appearing, FOS go through phases where they think of things in different ways and then there is a spate of cases going through- sadly to late for the advisor. all this is doing is traumatising and already traumatised advice community. If FOS think tis was just an advisor covering up that they really sold the idea of a golf course to a bunch of customers and then covered it up by using Execution only as cover- then I would understand. So now, how does the industry progress now- we cant recommend wrappers without assessing specific investments, which we cant possible assess, which we can’t ignore, that we can act on instructions, that we cant allow customers to insist on- so now no-one can do anything bar regulated investments- end of story- because they won’t find an advisor who will touch them, because FOS just interpret the rules as they want to and constantly change their view over time (unless someone can show me cases like this form 5 years ago). Customers should probably just get used to the fact that it isn’t really their money as they aren’t considered ca[able of making choices bad or good. And what made the customers think that having given execution only instructions that they could complain to the advisor- was this their idea or someone else’s? Individual decisions I get- but sweeping hindsight changes just bring everyone into disrepute. This is what needs fixing and this decision is already cascading through the various compliance departments, with new rules being written to be issued to advisors who will need to sit in front of customers tomorrow and say they cant help them- find your own tax wrapper? if this case when to court wouldn’t it be laughed at- given that the advisor had clearly not been contracted to give advice on the underlying investment.

  9. I think you all misunderstand. The term means that they are out to execute you for taking on this kind of business. After all there has to be someone to blame if a numpty gets it wrong.

  10. David Brookes 16th May 2016 at 5:32 pm

    The clients seem to be in a win win situation here as the ruling apparently says “Tenet has been ordered to reimburse the complainants’ pension plans in the event of a loss” so if the investment makes money they are OK and if it loses money they get their investment back, I think I’ll have some of that!

  11. Totally agree, get ride of execution only option, don’t transact any business you do not support the advice. Further more regulate a few products that should be regulated and then restrict all regulated advisers to regulated products and investments. Problem solved I my company and I will not have to keep paying out for unregulated investments that are costing us a fortune paying for, which we do not transact as we know they are dangerous.

  12. Philip Castle 16th May 2016 at 7:05 pm

    I have avoided this sort of situation like the plague, BUT i agree with Jane Hodges. Unlike the LAW, FOS gives NO certainty. next we will be requiring pre approval from FOS before doing any business!

  13. Philip Castle 16th May 2016 at 7:08 pm

    I have only done one execution only case in 18 years as the consumer has to come in stating the product, provider and investment selection in my view to be EO and that is rare.

  14. Philip Spierling 16th May 2016 at 8:05 pm

    I don’t understand this, did they purchase the land all together as one tranche or did they buy separate plots of land. Also in Spain when you buy you go to the notary to complete and have your lawyer and sometimes the selling agent at the signing. Surely the lawyer and notary would show where the land was situated and one of the four would realise it was not the land they thought they were buying.

    There are so Many steps in buying in Spain and it is usually a drawn out buearocratic process that there would have been plenty of times that red flags popped up that showed something was not correct.

    If the land was not what was agreed on the plan then they recourse against their lawyers for not pointing this out and allowing them to proceed with the purchase.

    It is just strange !!,,,

  15. Gillian Cardy 17th May 2016 at 8:52 am

    Not one for standing up for FOS as some of their decisions are inconsistent / bizarre / unfair / ill-informed … but in this case I do recommend a reading of the full FOS decision (published on their website) which adds some material facts which are not covered or mentioned which may affect our judgement on the decisions (summarised as several clients doing exactly the same thing at the same time to facilitate investments which the adviser did know about with the EO letter signed several months after the events in question … and a quick trawl of the FCA register adds some colour to some of the business relationships involved)

  16. headbelowthe parapet 17th May 2016 at 9:32 am

    The FOS are quite correct in this decision, in my opinion. An unregulated introducer asking an IFA to set up a bunch of pension transfers into SIPP contracts and then big surprise they all want to invest in a overseas property development – surely the alarm bells would ring? Once the alarms have rung, the ‘it was nothing to do with me gov’ defence is untenable.

  17. I have to side with FOS on this; I don’t for one second believe they don’t recognize ex only, however, 9 CASES 9 bloody cases, and they were all transfers ! I have had one ex only case in my 25 years ! now if 9 people rocked up to my door and wanted WITH NO ADVICE an investment that is unregulated, the alarm bells would render me without hearing, even if it was regulated I would think there was some kind of inside knowledge either way I would send them packing !

    Tenet should have picked this up, and because they didn’t they have paid the price !

  18. Suppose you worked in a Travel Agency and somebody asked for a single rail ticket to Eastbourne. No problem with that.

    Suppose, though, that they asked you to make it a combined ticket that then gave them a one way bus ride up to the top of Beachy Head. You might not be advising them would you really be able to later live with knowing that they had jumped off – because you got your sale?

    DH is right, and FOS is right. The adviser should have realised something was up and acted accordingly. Instead, he and Tenet were the fall guys (or should that be fool guys) for a bunch of wide boys.

  19. Derek Snowden 18th May 2016 at 9:03 am

    If you are accepting a fee or a commission for arranging this ‘non-advised’ transaction, then you should also be accepting the responsibility for the transaction.

  20. Julian Stevens 18th May 2016 at 8:25 pm

    That’s a very debatable proposition. It might well be that the customer’s chosen provider accepts no business other than via a regulated intermediary with an agency. The only way forward would be to transact the business on a fully advised basis or not at all. If the client refuses the fully advised route, well, tough. Generally speaking, I think this has to mark an end to all Exec Only and Insistent Client business. It means nothing if the FOS rules that even though the client may have signed a statement that they were acting on their own initiative without advice but the FOS then holds the intermediary responsible on the grounds that s/he should have advised the client against it.

  21. @ Julian: The point is that your network colleagues advised on HALF the transaction – the SIPP – but not the other half, when the entire point of the SIPP was to access the underlying investment.

    The FOS decision makes that clear, and refers to (and endorses) the FCA’s view set out in its 2013 alert that you cannot – and never have been able to – split out advice like that.

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