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FOS orders compensation over Sipp transfer to Ucis

Risk-reward-attitude-profitThe 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.”



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. An interesting FOS decision and worth a read using the link MM now provide to it (DRN8122813). It would have been interesting to see the Fact Find here to get a fuller picture. Even more interresting would have been to be a fly on the wall to the meetings and I wonder whether the FOS may have concluded any differently had there been a recording of the meetings?
    Attitude to risk and capacity for loss opinion after the event may differ from the parties actually at the meeting. £75k in one thing does seem a bit of a punt…. I’d invest that in my own business, I don’t think I’d invest it in someone elses without security being offered of a legal charge or personal guarantee. Even the dragons on TV are more cautious and they have a massive capacity for loss, but they still value their £75k or so and will take a significvant part of the upside (40% equity for instance) where no other security is offerred.

  2. Although O would never invest my clients in any such investment like this. The decision the FOS made seems to have been made with the benefit of hindsight. Well we can all do that can’t we!

  3. “While the adjudicator acknowledged that Mr C had previous UCIS investment experience, s/he decided that Mr C was unaware these were UCIS investments at the time of sale.” The evidence for that being…?

  4. Paper Work, Paper Work, Not sure really why a Ucis or a Regulated Collective should have had any barring on the subject, many a Regulated Collective has performed just as badly, over time, or are we saying because it was “Unregulated” if so, I thought that was why we are Independent Advisers, had a Regulated fund provided the same result would the FOS adjudication have been the same! Rory Powell Invesco European comes to mind!!!!!! we tend to forget the past!!

  5. “sophisticated investor declaration”? What is a sophisticated investor? They may think they are at the time but later on… If they knew what UCIS were what would they think a “New Earth Fund” might be? Never mind, the compensation machine is well oiled.

    • The report does say “the adjudicator acknowledged that Mr C had previous UCIS investment experience”, from which it seems reasonable to assume that the nature of that particular beast was discussed with Mr C and that those discussions were recorded on CitiMark’s file. On what basis can the FOS adjudicator justifiably uphold Mr C’s claim he was “unaware at the time of sale” that one of the investments recommended by CitiMark was a UCIS?

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