View more on these topics

IFA court win over FOS

An IFA has won a stunning High Court victory over the Financial Ombudsman Service, raising serious questions over the way it calculates redress.

In the Royal Courts of Justice in London last week, Mr Justice Sullivan overturned a FOS award against Garrison Investment Analysis for the alleged missale of NDF structured income products, arguing that its application of the FOS’s standard formula for calculating redress was “irrational” for such high- risk investors.

The court case stems from advice given by Garrison managing director John Duerden to a retired couple, Mr and Mrs Bell, which led them to invest 20 per cent of their portfolio, or 59,088, in an NDF bond (NDF3) in 2000 and then a further 20 per cent, 52,903, in another NDF fund (NDF5) in January 2001.

The couple complained to the ombudsman in 2004 after their investments faltered after 9/11 and the subsequent stockmarket fall.

Although a FOS adjudicator rejected both complaints, the ombudsman overruled the decision and upheld the couple’s complaint about the NDF5 sale. It said it was unreasonable in any circumstances to increase the investment in NDF products to 40 per cent.

The IFA appealed, arguing that the ombudsman had not given adequate reasons for its change of mind. It also claimed the FOS was wrong to use its standard method to calculate redress by assuming that the couple would have had their capital intact with a 1 per cent return.

Mr McManus QC, representing the FOS, argued that the 40 per cent investment was too risky for the retired couple who he said had made it clear that they wanted to reduce their exposure.

But the barrister acting on behalf of Garrison, Paul Stafford, presented compelling evidence, seen by the ombudsman when it investigated the case, that the Bells were experienced high-risk investors who had cashed in high-risk equity investments to invest in NDF bonds. He said that given the couple’s risk profile, it was unreasonable for the FOS to apply its standard redress calculation. Stafford also argued that the tumble in the stockmarket was unforeseeable and the Bells would have experienced a similar loss had they invested in equities.

Summing up, Justice Sullivan said he did not accept that the FOS reasoning on liability was inadequate but branded the FOS redress calculation “irrational” in this case and ordered the FOS to pay half Mr Duerden’s legal costs of 40,000.

Duerden says: “The FOS is an arrogant organisation that has not listened to us. This is not about the money, it is a matter of principle. I am delighted that someone of the judge’s standing has realised the way it calculates redress is wrong.”

FOS spokesman David Cresswell says: “The standard redress model has not been questioned in general, just for this particular case.”

Gareth Fatchett, a spokesman for Duerden’s lawyers Financial Services Legal, says: “This ruling will save IFAs vast amounts of money in the long term.”

Recommended

Rooftop swoops for Garrard as new sales director

Former Em Financial business development director Guy Garrard has joined Rooftop Mortgages.Garrard, who becomes sales director, left packager EM in June for personal reasons and initially said he wanted an extended stay away from the market, but he has now been tempted back by Rooftop.He has previously held roles at BM Soltuions and GMAC. Garrard […]

Reorganised chaos

I have been reading some stuff about Mifid. How depressing. I am reminded of an old quote: “We trained very hard but it seemed that every time we were beginning to form up into teams, we would be reorganised. I was to learn later in life that we tend to meet any new situation by […]

Sandler firm Kyte fined 250k by FSA

A company chaired by stakeholder reformer Ron Sandler has been hit with a 250,000 fine by the FSA. The regulator found that between 2001 and 2003, derivatives broker Kyte Group breached FSA rules by failing to properly reconcile client money balances and segregate the correct amount of money on behalf of its clients. It also […]

Giant US bank poised for move into UK loan arena

The fourth-biggest bank in the US is planning to enter the UK mortgage market, with four other investment banks also lining up moves. Wachovia Securities, which has over 13 million customers in the US, is considering moving into the UK mortgage and unsecured loans market either through acquisition or by building its own proposition. It […]

Tech winners keep on winning

By Ali Unwin, chief technology officer & fund manager, Neptune Artificial intelligence, driverless cars, big data. As technological advancements – and disruption – increasingly dominate headlines, Ali Unwin sets out six key themes he is watching in 2017. Read more Important Information Investment risks Neptune funds may have a high historic volatility rating and past performance […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment