Advisers hit out at FOS approach to execution-only

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A decision by the Financial Ombudsman Service forcing Tenet to pay compensation to a group of Sipp investors has raised concerns about how the FOS treats execution-only work carried out by advisers.

The FOS ruled that Tenet was wrong to help nine clients open new Sipp accounts to invest in an unregulated scheme for a golf course in Spain without giving them advice.

In 2010, the firm’s clients transferred all their pension savings into property investments through Resina Golf Limited in Spain, only to find later they owned land adjacent to the golf course.

Tenet claimed the investments were unregulated and the clients had invested on an execution-only basis, but the FOS ruled Tenet should have warned the clients that the scheme was an unsuitable investment.

Ombudsman Terry O’Connor, in his provisional decision notice, says firms cannot avoid their duty to give suitable advice by limiting the scope of advice they provide.

O’Connor says: “I am not persuaded the transfer and the Sipp opening were in reality on an execution-only basis. I accept Tenet’s point that they gave no advice. But in my view, they should have given advice.”

Investment Quorum chief executive Lee Robertson says while his business does not offer execution-only advice, for those that do, both the adviser and the client should be protected.

He says: “To come back later and say that while the client insisted they didn’t want advice you should have given it anyway is a bit disingenuous.

“If execution-only is of no protection to the adviser, then just do away with it completely rather than letting advisers do it thinking they are protected. Why have it as a concept at all if the concept is not robust enough in law or in judgment?”

“If execution only is of no protection to the adviser, then just do away with it completely”

Robertson adds: “There is a principle of execution-only that the regulator seems to allow and yet the ombudsman doesn’t appear to be allowing it. So advisers are caught in this grey area where the regulator will say we have given enough guidance on it but the ombudsman will go ahead and make their own rules anyway.”

Echelon Wealthcare managing director Alastair Rush says there are wider moral and ethical implications for advisers to consider.

He says: “My business card says adviser so I am here to advise people. It is up to me whether or  not I want to compromise what I am here for.

“If something is bad for a client, my advice must be not to do it. I should not just say ‘I don’t think you should do it but I’m going to let you do it anyway by facilitating it’.”

Financial & Technology Research Centre director Ian McKenna says the Tenet decision only adds to his belief that the regulatory system is not fit for purpose.

He says: “This is a classic case of a nanny state attitude. The ombudsman behaves like it is omnipotent. That does not help anybody. Their actions are so inconsistent.”

In two of the four cases referred to the FOS, Tenet has been ordered to reimburse the complainants’ pension plans in the event of a loss. If Tenet cannot pay into the pension plans then the complainants should be paid directly.

Tenet has also been ordered to pay the two complainants £250 for any concern and worry they suffered. Details of the other two complainants have not been published.

Tenet group regulatory director Gill Davidson says: “We never comment on individual cases,  although we recognise why the language used by the ombudsman will attract interest and concern from advisers.

“Whenever we consider a decision to be incorrect, particularly with regard to the assessment process by the FOS, we will review our options  and take steps to protect our advisers, whilst recognising the importance of appropriate consumer outcomes.”

The FOS decision:

  • Tenet should have exercised a duty of care to the complainants in considering the suitability of transferring the pension to a Sipp to make an unregulated investment
  • Tenet should have exercise better judgement about the investment and its suitability for the complainants
  • The complainants did not have sufficient knowledge to enter the transaction on an execution-only basis and Tenet should have done more to increase their understanding