The Financial Ombudsman Service has told a firm to compensate a client who was advised to transfer their Sipp into an unregulated collective investment scheme.
The client, referred to as Mr C, complained that advice he received from The Citimark Partnership to invest funds from his Sipp into an Ucis was unsuitable.
Mr C met with Citimark to discuss minimising his corporation tax by making an employer contribution to his Sipp.
Citimark recommended an investment of £225,000 into the Sipp, £140,000 of which would be added to Mr C’s existing portfolio and the remainder be invested in “higher risk niche fund in the waste management sector”.
In 2008 Mr C invested £75,000 into the New Earth fund as Citimark completed a sophisticated investor declaration stating he was qualified to do so.
But Mr C received information from New Earth in July 2016 telling him the premier investment opportunities element of the fund had gone into liquidation and he had lost his investment.
Mr C complained to Citimark saying he did not want to be invested in anything in which he could potentially lose all his money.
The case was referred to one of FOS’s adjudicators who upheld the complaint and said Mr C was not a sophisticated investor.
The adjudicator ruled that Mr C would not wish to invest 33 per cent of his contribution into a Ucis which could potentially result in him losing his full investment.
However Citimark argued Mr C was a high net worth client with previous Ucis experience and so met the sophisticated investor definition.
The business also said he was made aware of the risks and these high risks were balanced out with some very low risks elsewhere in his portfolio.
While the adjudicator acknowledged that Mr C had previous Ucis investment experience, they decided that Mr C was unaware these were Ucis investments at the time of sale.
Similarly the adjudicator pointed out that having both high and low risk investments does not necessarily equate to a balanced portfolio.
Citimark then requested an ombudsman review the case, but on appeal they also sided with Mr C.
They agreed Mr C was not a sophisticated investor, did not receive suitable risk warnings and was not in a medium risk portfolio.
To compensate Mr C, Citimark has been told to compare the performance of Mr C’s investment with the FTSE UK Private Investors Income Total Return Index as a benchmark.
It should then pay the difference between the fair value and the actual value of the investment and any interest.
Ombudsman Keith Taylor says: “In assessing what would be fair compensation, I consider that my aim should be to put Mr C as close to the position he would probably now be in if he had not been given unsuitable advice.
“I think Mr C would have invested differently. It is not possible to say precisely what he would have done, but I am satisfied that what I have set out…is fair and reasonable given Mr C’s circumstances and objectives when he invested.”