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FOS penalises adviser over not reviewing Ucis investments

Magnifying-Glass-And-Text-Kindle-Contract-700x450.jpgAn adviser must compensate a client for failing to monitor the performance of Sipp investments in two unregulated collective investment schemes.

A Financial Ombudsman Service decision says Welsh advice firm Sebastian & St James International Financial Advisers is responsible for the reduction in the client’s pension.

In October 2011 the client, Mr P, met an IFA and was advised to transfer his pension funds into a Sipp with Standard Life and enter into income drawdown.

As part of that initial advice, Mr P was advised to invest £20,000 in New Earth Solutions recycling fund and £20,000 in UK Secured Finance fund, both Ucis funds.

In January 2013, many clients moved from the original IFA to Sebastian, following its acquisition.

In 2016 Mr P’s representatives complained he invested more than £105,000 in the plan up to that date, but it was worth around £30,000.

Mr P’s representatives said the terms under which Sebastian took on Mr P as a client included a retainer to exercise reasonable duty and care of his funds.

In its response to FOS for information Sebastian said it was only a servicing agent, the plan had not been written by it and so the complaint should not be upheld.

The FOS adjudicator felt Mr P’s complaint should be upheld as it was clear Sebastian was not just a servicing agent for Mr P’s Sipp as Standard Life provided evidence Sebastian gave Mr P advice from at least August 2015.

The original IFA was taking 1 per cent trail commission while the advice letter from the original IFA said that an annual review would be offered.

The letter transferring Mr P from the original IFA to Sebastian said the existing commission terms would be maintained and there would be an ongoing service in exchange for the payment of commission.

The adjudicator added Sebastian would have become aware that Mr P had significant holdings in Ucis funds if it had done the review and should have advised him to switch out of them.

Sebastian did not agree with the adjudicator’s view and argued the advice to invest in the Ucis was given by the original IFA and it could not be held liable for the advice.

In the final decision, ombudsman Alison Cribbs agrees Sebastian was not responsible for the initial advice but should have carried out a review of the client’s investments following the takeover of the business.

It should have advised him to transfer out of the Ucis and is liable for what went wrong with his investments.

Cribb refers to the letter from Sebastian to Standard Life as at January 2013 that says: “Please accept this letter as confirmation that Sebastian & St James International Advisors will firstly accept liability for any outstanding indemnity commission, the clients have been informed of the transfer of servicing company and that the existing commission terms are to be transferred and there will be an ongoing service in exchange for the payment of commission.”

Furthermore the original suitability report provided to Mr P in 2011 recorded his attitude to risk as medium/balanced and Ucis are generally high risk investments.

Therefore if Sebastian had carried out a review of Mr P’s pension in early 2013, it should have advised him that those investments were not suitable for him, and advised him to transfer out.

Sebastian should pay Mr P compensation based on the comparative performance of each of Mr P’s investments against the FTSE UK Private Investors Income Total Return Index benchmark.

It should also pay Mr P £400 for his trouble and upset.

Sebastian declined to comment.



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

  1. Philip Castle 9th May 2018 at 8:46 am

    These two lines are key;

    1.The original IFA was taking 1 per cent trail commission while the advice letter from the original IFA said that an annual review would be offered.

    2. The letter transferring Mr P from the original IFA to Sebastian said the existing commission terms would be maintained and there would be an ongoing service in exchange for the payment of commission.

    Quantum for loss up until change of advsier would rest with original adviser and new advsier fro change of ongoing adviser ofr PAYMENT for service.

    What the F-pack needs to get their ehads around is hwo to deal with cessation of ongoings ervice and hence cessation of increase in loss fromthat date and then re-insert the 15 year longstop so that 15 years after cessation of ongoing service they start to respect advsiers legitimate common law rights for a Longstop. It’s no different to what is in the new today about a statute of limitations for Forces personal especially where a review has already taken place (otherwise it is effective double jeopardy for them and perhaps in their 70’s or 80’s)

  2. Julian Stevens 9th May 2018 at 9:44 am

    “…and there will be an ongoing service in exchange for the payment of commission” is quite unambiguous. Ongoing service means ongoing reviews, the first of which must surely have been due at the earliest possible opportunity following S&SJP’s appointment as Mr P’s new intermediary. This basic precept has been clearly articulated in at least two previous FOS judgements.

    Responsibility for the original advice is an entirely separate matter and not the subject of this complaint. Suggesting otherwise is, at best, disingenuous.

    • Philip Castle 9th May 2018 at 10:00 am

      Yep.. I agree with you. Our agreements clarify whether we are assessing suitability of exisitng contracts on taking on a client and for the future too.
      Unfortunately recently that has resulted in me having to ask a new clients existing adviser to have his file reviewed by his compliance consultants as on the face of it the original advice looks somewhat flawed and there are multiple errors and inconsitencies in the suitability report which makes it impossible to know whether the advice at the time was correct, but the product 3 years later certainly isn’t.
      Difficutl situation as I know teh other adviser and have introduced him to potential new and some of my existing clients when I have not had enough capacity for new business (my locum ahs no capacity for more clients) or it’s mortgage related advice needed (which we avoid like the plague)

  3. David Leuchars 9th May 2018 at 11:14 am

    If the entire crux of their argument is that they were only a servicing agent and they didn’t write the agreement they were signed up to, (despite a letter clearly stating they took over as an on-going service) but were still happy to take regular commission, that’s an utterly spurious argument and they should be fined for wasting the regulators and the customers time.

    • Julian Stevens 9th May 2018 at 7:50 pm

      But even that argument falls lamely at the first hurdle. One wonders what constitutes S&SJP’s idea of “servicing” in exchange for an ongoing charge of 1% of the value of Mr P’s pension fund (£105,000 initially, whereafter they just stood by and let it bomb to a mere £30,000).

  4. Robert Milligan 10th May 2018 at 1:23 pm

    If you transfer a clients assets under your firms Regulated Authority, from that date you are accountable to the client on the suitability of the assets integrity. Otherwise Do Not Transfer it. This clearly is what the RDR was about. I know it will have an in pact on the Saleability of an IFA practise, But I whole heartily agree with the FOS on this one, In Fact, a Well Done to the FOS. There are Far to many Fat Cats sat at the top of the tree, feeding Off the Advice process, who could not survive as an adviser The Client after all is being charged. And it reflects on us all.

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