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Collapsed DFM to compensate for failing to act in client’s interest

Risk-reward-attitude-profitThe Financial Ombudsman Service has ruled a collapsed discretionary fund manager must compensate a client for failing to properly assess a client’s interests.

Mr R’s complaint is about £45,000 of his self-invested personal pension, which was placed in Leicester-based Horizon Stockbroking.

He is represented by Martin Aitken Financial Services who advised him about transferring his existing pension arrangements to a Sipp.

After the transfer, in March 2015, Mr R signed an application form to open an account with Horizon.

The Sipp provider’s covering letter said it was to be the sole account holder as trustee and Mr R’s personal details were provided for Horizon’s records.

The account was opened using £45,000 from Mr R’s Sipp, which was deposited with Horizon later in March.

In May 2017 Martin Aitken Financial Services wrote to Horizon making a formal complaint on Mr R’s behalf saying it had not been involved in setting up the Horizon trading account.

Mr R said his application form was completed, after he had signed it and when he was not present, by someone FOS calls Mr B or possibly an associate of Mr B.

FOS says Mr B was unregulated and had no contractual relationship with Horizon.

This process led to Mr R being designated as a high-risk investor even though he was not one, which allowed Horizon to manage his investments through a contracts for difference account.

In the provisional decision Martin Aitken Financial Services argued contracts for difference were expressly prohibited by the Sipp provider while Horizon had been negligent and acted in breach of its contract with Mr R.

It also said this breached the regulator’s rules and resulted in Mr R losing £18,348 on a loss of investment return basis.

Horizon countered these points saying Mr B was not a representative for it and Mr B also worked with Martin Aitken Financial Services and another regulated firm generating pension leads.

Additionally, it argued advice to open the account with Horizon was given by a regulated IFA and the IFA should have completed a suitability report, investment objectives and risk profile.

There was more back and forth between both parties and, in her final ruling, ombudsman Lesley Stead says the crucial point is whether Horizon met its obligations as an FCA regulated business.

She says it has to comply with the rules set out by the FCA in its handbook including skill, care and diligence (under COBs rule 2), customers’ interests (under COBs rule 6) and communications with clients (under COBs rule 7).

It was wrong to conclude contracts for difference trading was appropriate for Mr R as this was too high risk (COBs rule 10).

Stead adds: “If Horizon had not accepted Mr R as a client Mr R would not have lost the money he did. So Horizon is directly responsible for the losses Mr R incurred on his contracts for difference trading account with Horizon.”

To compensate Mr R she instructs Horizon to compare the performance of Mr R’s investment with that of the benchmark she has chosen and pay any difference.

Horizon must also pay £150 compensation for the worry and distress he has suffered.

A spokesman for Horizon says: “The FOS decision has been accepted by Horizon. Quite obviously Horizon did not help itself in this case, when its own FCA-regulated employees with responsibility to respond to FOS information requests chose to continuously offer no response whatsoever to FOS.

“Ignoring such FOS information requests obviously counted significantly against Horizon when FOS made its final decision.

According to The Gazette Horizon’s resolution to wind up was completed on 12 July.

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