The way in which the Financial Ombudsman Service judges advice to invest in unregulated collective investment schemes has been called into question after it upheld a complaint from a high-net-worth and sophisticated investor.
The FOS has seen a “steady increase” in Ucis complaints over the past six months and is currently reviewing around 800 complaints. It says the majority of complaints are upheld.
The FCA’s rules ban Ucis from being marketed to all but sophisticated and HNW investors. Sophisticated investors are defined as retail clients with “extensive investment experience and knowledge of complex instruments”, while HNW investors must have an annual income of more than £100,000 or investable net assets of more than £250,000.
But in a decision published this month, the FOS upheld a complaint against Kevin Neal Associates despite the investor appearing to meet the FCA’s Ucis promotion rules.
The FOS decision states that the investor had “a substantial income from royalties, personal assets worth around £500,000 and a property worth £1.5m”. He also signed a declaration stating that he was an experienced investor.
In 2010 the investor was advised to invest 75 per cent of his £180,000 pension fund into three Ucis schemes.
Kevin Neal Associates partner Kevin Neal says: “We did a full fact-find and risk assessment at the time and provided that to the FOS.
“The client had an income of £200,000 from his business, a diversified portfolio and had bought unlisted shares.”
But the FOS said it had not seen enough evidence that qualified the client as sophisticated or HNW, and the investments posed an unsuitable level of risk.
Ombudsman Adrian Hudson has ordered Kevin Neal Associates to purchase one of the investments, a £47,700 investment in forestry fund Quadris Environmental.
If the firm is unable to buy the investment, it must pay the client £57,432 – the value if the investment had been invested in the Apcims Income index – plus a further £4,348.
Apfa senior policy adviser Clare Griffiths says: “We hope and expect that if an adviser has met the FCA’s requirements, that would stand them in good stead if a case goes to the FOS. But we are aware of concerns among advisers that it is not always the case.”
Plan Money director Peter Chadborn says: “The FCA Ucis rules are clear but it is the FOS’s interpretation of them which advisers have to second-guess.”
The FOS declined to comment further on the case.