The FCA and its predecessor have long banged the drum about the importance of due diligence and assessing suitability. Industry insiders tell Money Marketing the regulator will be scrutinising the retail investment advice market closely when it carries out its thematic review into due diligence later this year.
So it is interesting that the controversial Financial Ombudsman Service ruling against Sipp provider Berkeley Burke seems to blur the lines about what role, if any, a provider should assume in examining whether investments are right for particular clients.
No doubt from Berkeley Burke’s point of view, this is an open-and-shut case. The investor paid more than £24,000 to Sustainable AgroEnergy, an unregulated investment, after being introduced by an unregulated agent. The client also signed to say he understood the high-risk nature of the investment and he was not given advice.
But the FOS disagreed, arguing the provider’s responsibility extended to establishing whether the investment was suitable. The FOS is now reviewing the final decision after Berkeley Burke brought a judicial review. This is the first case of its kind where the ombudsman has gone back on a final decision outside the legal process.
The case raises interesting questions, not least what the point is of investors signing declarations to say they understand the risks of investing only for them to bring
a complaint to the FOS further down the line. The principle of caveat emptor has never been more sullied.
The fact that the main elements of the product chain were unregulated seems to have done little to stop the complaint from ending up at the FOS’s door. In this case, the FOS has gone after the only regulated entity it can.
Whatever the outcome of the review, having to go back on a final decision is a PR nightmare for the FOS. If it upholds its original ruling, it opens a whole new world of provider responsibility, which could end up limiting investor choice too much the other way and presenting more complaints to the FOS.
Meanwhile, a U-turn would represent an embarrassing climbdown and risk opening the floodgates on judicial reviews when complaints do not go a firm or consumer’s way.
One final point to note: for the case to get to this stage, the complainant had to agree to a review. The motivation for the investor to do this is open to question but clearly advisers and providers have an interest in this decision and in its impact on future investment recommendations.
Natalie Holt is editor of Money Marketing – follow her on Twitter here