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.
The FOS also warns the IFA will become liable for redress due to be paid under the FSA-agreed £54m compensation package if this is withdrawn before December 31, 2012. The compensation scheme is being challenged through judicial reviews brought by Justice in Financial Services and Regulatory Legal.
The case represents the first provisional decision against an IFA over Arch cru by the FOS.
The IFA, who has not been named, has been ordered to pay redress based on the clients’ original £8,000 investment plus interest, less any withdrawals or distributions already paid. The amount the clients can get from the compensation scheme will then be deducted to give the total redress amount.
The clients, who are only identified as Ms P and Mr M, sought investment advice from the IFA in February 2008. They held about £50,000 in various savings accounts and were hoping for better returns than those available on their deposit account. They invested £4,000 each into the CF Arch cru investment portfolio fund.
The clients referred the case to the FOS after complaining to their IFA when the fund range was suspended in March 2009.
The IFA argued the investment accounted for 17 per cent of the overall portfolio with the rest held in cash, that the funds had been incorrectly valued and that it trusted Capita Financial Managers to do its job as authorised corporate director of the funds.
In his provisional decision, principal ombudsman Tony Boorman says: “I am satisfied this recommendation exposed the consumers to significant risk and not one which their circumstances suggest they were willing to take.”
Paladin Financial Services managing director Tim Purdon says: “The IFA is responsible for recommending the product. By the same token, it is a product that should never have reached the marketplace. If the FSA cannot intercept such questionable investments, how can they expect an IFA to conduct due diligence?”