The Financial Ombudsman Service has provisionally upheld a complaint against an IFA who recommended clients to invest in Arch cru, and ordered the adviser to pay redress.
In a provisional decision published on the FOS website today, ombudsman Tony Boorman (pictured) says he decided to uphold the complaint on the basis that the recommendation to invest in Arch cru was not suitable for the clients’ individual circumstances.
The IFA, who is not named in the decision, has been ordered to pay the clients redress. The redress payable is to be calculated based on the return of their original £8,000 investment, less withdrawals or distributions already paid, plus a return of Bank of England base rate plus 1 per cent as the date of the FOS’ final decision.
The amount the clients can get from the FSA agreed compensation scheme will then be deducted to give the total redress amount.
The FOS says if the £54m compensation package agreed by the FSA, Capita, BNY Mellon Trust & Depositary and HSBC Bank is withdrawn before December 31, 2012, the IFA will have to pay the same level of redress that would have been available under the scheme within 28 days.
The clients, who are only identified as Ms P and Mr M, sought investment advice from the IFA in early 2008. They had recently sold a property and held about £50,000 in various savings accounts.
Ms P and Mr M were hoping for better returns than they were currently earning on their deposit account, and hold some cash in order to reducing their mortgage.
Acting on their IFA’s advice they invested £4,000 each into the CF Arch cru investment portfolio fund, which was then placed in a stocks and shares Isa.
They complained to their IFA over concerns about forecasted losses when the fund range was suspended in March 2009.
Unsatisfied with their IFA’s response, who told them the advice had been sound based on the research he had been able to carry out, they referred their complaint to the FOS.
An adjudicator recommended the complaint should succeed, which was contested by the IFA. The IFA argued that the investment accounted for 17 per cent of the overall portfolio, with the rest held in cash.
The IFA also argued the issue with Arch cru stems from incorrect valuations by the auditors and actuaries, which was not something an IFA could have established with reasonable due diligence. The IFA also said it trusted Capita to do its job as authorised corporate director of the funds.
In his provisional decision, Boorman acknowledges that the Investment Management Association classed the fund as cautious managed, but says the IFA should have known this was not the same as ’low risk’.
Boorman says: “I am satisfied that this recommendation exposed the consumers to significant risk and not one which their circumstances suggest they were willing to take. The asset holdings are, in my opinion, non-standard and potentially specialist. This should have alerted the IFA to the fact that such specialist funds were unlikely to be suitable for unsophisticated investors such as Ms P and Mr M.”