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FOS penalises adviser over Harlequin Sipp property investment

Home-House-Money-Property-700x450.jpgThe Financial Ombudsman Service has told Kingswood Financial Advisors to compensate a client over a Sipp investment in an unregulated Harlequin property fund.

The case concerns Mr B’s complaints about the advice he received regarding two unregulated investments: one into a Harlequin property fund and the other into Green Oil.

The ombudsman’s ruling relates to Harlequin and not Green Oil and is informed by a prior provisional decision.

In 2010, Mr B was invited to a Harlequin presentation by a third party who he then says introduced him to Kingswood to have his pensions reviewed.

At the time, the value of Mr B’s executive pension plan was roughly £5,000 and his Sipp appears to have been worth £30,500.

Mr B says he had no prior history of using pension money in speculative investments but Kingswood advised him to transfer both plans to a new Sipp provider in 2010.

The new Sipp was used to invest most of Mr B’s money into the Harlequin property fund in 2010 while the remainder of his money went into Green Oil in 2011.

A Kingswood adviser completed a fact find for Mr B in June 2010 and sent him a suitability letter in July 2010.

This suitability letter said the adviser was aware that Harlequin was the purpose behind the pension transfers, but Kingswood disclaimed responsibility for advice and its suitability.

It also said the pension money was to be used for the investment after the transfers and Mr B’s attitude to risk was a small loss to his money.

Finally Kingswood recommended a new Sipp provider it considered fitted “squarely into [Mr B’s] investment strategy”.

Initially, Mr B argued Kingswood should have advised him about the unsuitability of both investments, that he had not properly assessed his investor profile and was wrong to recommend a new Sipp.

Kingswood countered no advice was sought or given to Mr B in relation to the Harlequin fund and all its correspondence with Mr B stated this.

Additionally, its advice to transfer Mr B’s pensions to the new Sipp was based on his plan to invest in Harlequin and the inability of his previous Sipp to cater for that.

Mr B’s complaint was then referred to FOS and ombudsman Roy Kuku who, in the provisional decision, said Kingswood should be held responsible for the Harlequin investment but not Green Oil.

This is because Kuku could not accept Kingswood’s assertions about Mr B being advised by third parties regarding Harlequin.

However, Kuku was not persuaded that it was fair to hold Kingswood responsible for the Green Oil investment.

Evidence in 2010 suggested Kingswood understood all of the value in the pension transfer and the new Sipp was to be used in the Harlequin fund.

Unfortunately, nobody at the time foresaw money would be left within the new Sipp or it would be used for the Green Oil investment over a year later.

In the final decision, Kuku repeats this line of argument and says compensation should only be for the Harlequin fund.

To compensate Mr B, Kingswood should pay £500 for the upset caused and buy a share in Mr B’s Harlequin property fund at a commercial rate.

If it is not possible to pay the compensation into Mr B’s Sipp then Kingswood should pay a cash sum to him instead.

Kingswood was not available for comment at the time of publication.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Who was the SIPP Provider?

  2. John Hutton-Attenborough 19th April 2018 at 2:42 pm

    At any point did the client ask the adviser “please advise me on the specific nature of the Harlequin Investment and whether this is something I should be considering”?

    • The client shouldn’t have to ask if they are paying for advice. If they are, then the adviser should be advising what to do and what not to and that includes daft ideas the client brings to them saying they want to do it. We’re paid to have an opinion…. doesn’t mean we’re always right…. but we’re paid to have an opinion/give advice, not to be right or wrong.

    • What difference does that make. The FSA has made it very clear you have to assess the suitability of the underlying investment.

      What planet do people live on. No wonder our FSCS levies continue to rise when advisers are still willing to take client’s orders without any thought for suitability.

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