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IFA loses Keydata and Arch cru FOS case against deceased pensioner

A pensioner who was advised to invest almost all her money into Keydata and Arch cru funds died before she won a Financial Ombudsman Service case against her IFA.

In a FOS final decision from 27 September and published last week, Glasgow-based BG Financial Services was ordered to pay “Mrs B” tens of thousands of pounds in compensation.

The firm provided “unsuitable” advice for Mrs B to invest £37,650 in Arch cru OEIC Isa funds and £20,368 in a Keydata Isa in the Africa Invest Capital Protected Plan.

The IFA also mistakenly advised Mrs B to use her Isa allowance twice for both funds. Mrs B retired due to ill health in 2000 and relied on the state pension.

When she met BG Financial in 2008 she had £74,602 in Peps and an Isa. She was looking to create an annual income of £5,900.

BG Financial advised her to deposit £5,195 in a credit union account and invest £58,018 in Arch cru and Keydata funds.

Around 30,000 investors lost £450m when Keydata collapsed in June 2009. Many have claimed from the Financial Services Compensation Scheme, which has separately sought to recoup money from advisers.

The FSA suspended Arch cru fund in March 2009 with up to 15,000 investors losing out from funds worth up to £364m. An FCA redress scheme is now in place for investors looking to recoup money.

After both Arch cru and Keydata failed, a FOS adjudicator ruled in Mrs B’s favour earlier this year.

Mrs B died shortly after the initial decision and BG Financial Services appealed against the deceased woman’s estate.

The FOS final decision said the adviser promoted the funds as cautious but the investments posed “significant and unusual risks”.

It rejected the adviser’s complaint that it relied on the FSA, the Investment Management Association and Capita in assessing risk.

The FOS has ordered BG Financial Services to pay the full amount invested in the funds plus a rate of return of 1 per cent above Bank of England base rate minus any redress received. It should also add 8 per cent interest a year to the total sum from 3 November 2010 until it is paid.

Informed Choice managing director Martin Bamford says: “The adviser in this case was foolish and lacked sufficient expertise to make a suitable recommendation.

“Perhaps the adviser was impressed by the sales presentations. In any case, they appear to have overlooked the fundamentals of basic investing in making their recommendations.”

BG Financial Services declined to comment.


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There is one comment at the moment, we would love to hear your opinion too.

  1. This article highlights the devastating effect of Arch Cru being marketed as ‘Cautious Managed’ when in fact it was highly risky. Tragic that the lady died before justice was done.

    Both investors and IFAs ought to be able to rely on companies like Capita doing what they are paid to do in authorising funds. If individual IFAs were supposed to spot that ‘Arch Cru’ was too risky, how come the FSA and Capita, with much larger resources, weren’t supposed to notice this?

    The IFA firm in this case may like to watch developments of a claim being made by 600 investors against Capita. @InvestorJustice (The twitter account is my personal account, and not run by the legal team involved in the case.)

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