A Kent-based advice firm is questioning its future after a complaint to the Financial Ombudsman Service related to a Harlequin property investment was upheld against it.
The decision, published by the FOS in September, relates to a client who was advised by Foreman Financial Services, trading as GraingerCo Financial Services, to transfer his pension to a Sipp.
He then used the Sipp to invest in an off-plan Harlequin property.
Money Marketing understands the decision has threatened the future of the business after it estimated the total compensation cost will be around £100,000.
The FOS decision says the complainant, Mr S, was the client of another adviser who introduced him to the Harlequin investment when they went to a presentation together. Mr S decided to invest in the Harlequin property, but as the adviser was not authorised to advise on pensions the complainant was referred to Foreman to arrange the Sipp.
In July 2011, Foreman advised Mr S to transfer his existing pension to a Sipp and Mr S then used the Sipp to buy the property.
Mr S complained Foreman had not assessed the suitability of the Harlequin investment but Foreman rejected that claim because Mr S had received investment advice from the other adviser and Foreman was introduced only for advice on the Sipp.
After investigating the complaint, a FOS adjudicator said Foreman should have considered the suitability of the Harlequin investment and that Mr S should not have been advised to transfer into a Sipp.
This was because Mr S already had seven buy-to-let properties and by transferring his pension into a Sipp and investing in Harlequin he was putting all of his investments into one sector. The adjudicator said this was a high-risk strategy and not suitable for the complainant’s “dynamic” risk profile.
Foreman did not agree with the adjudicator’s findings and the complaint was referred to an ombudsman.
Foreman argued while the firm did not give specific risk warnings about Harlequin, some weight should be given to the fact that another business gave the investment advice.
Foreman also argued the only fair outcome in the case would be to open a complaint against the business that introduced. He added the firm had followed the rules in place at the time.
In his decision, ombudsman Roy Milne says because the original adviser was not authorised to give advice on pensions or investments, their network would not accept any responsibility for advice given about Harlequin.
Milne says Foreman should pay full compensation but that Mr S should give Foreman any rights of action he might have against third parties so Foreman could decide if it wanted to recover any payments from the network.
He says: “Foreman only advised on the Sipp. They argue Mr S had already decided to invest in Harlequin after being advised by another adviser. In my view, the suitability of the transfer needs to be considered in its entirety. The risk involved is about the investment rather than the Sipp. So, to give suitable advice in line with the rules the investment had to be considered.”
The ombudsman also found if Foreman had given suitable advice Mr S could have cancelled his investment but he would have lost the £1,000 reservation fee he had already paid for the Harlequin property.