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Sesame to compensate over unregulated property investment dispute

Sesame must pay compensation after a complaint involving one of its advisers and an investment in an unregulated property scheme.

The client, Mrs H, complained the advice from the adviser at Echo Financial Planning, which was an appointed representative of Sesame until 2014, was unsuitable.

As a Financial Ombudsman Service decision explains, in 2012, Mrs H cashed in most of the investment she had with Cofunds and put £100,000 into Highfield Developments. This was an unregulated arrangement and Highfield promised to return her investment with interest in six months.

In 2013 she cashed in the remainder of her Cofunds portfolio and invested a further £6,000 into Highfield.

Mrs H had told her adviser she needed the return from Highfield to fund legal costs related to a property dispute against her daughter. She also complained about that property investment to the FOS, however the FOS did not investigate that aspect of her complaint because it fell outside their jurisdiction.

Mrs H received her money from Highfield much later than the six months that was promised. She incurred court costs trying to recover the money from Highfield.

In a provisional decision, the FOS said the Highfield investment was not suitable for Mrs H and upheld her complaint. The decision said there was no evidence the adviser had discussed the additional risks of investing in Highfield, or took steps to assess Mrs H’s attitude to risk or be satisfied the investment was suitable.

Sesame did not accept the provisional decision, saying that Mrs H was an experienced investor and was aware of the risks of investing in equities and property. It also said Mrs H had done her own research and was “persistent” that she wanted that kind of investment.

It also argued that the adviser was merely following Mrs H’s instructions to cash in her Cofunds investment and that he was involved in that process because it required him to be. It said that did not constitute advice.

Sesame also said there was no incentive for the adviser to recommend Mrs H move her investment into Highfield and that Mrs H was not disadvantaged by the Highfield investment. it said the amount returned to her was worth more than her Cofunds investments if they had been retained.

In its final decision, the FOS upheld the complaint.

The FOS recommended Sesame pay compensation to put Mrs H back in the position she would be “but for the innappropriate actions of the adviser for which Sesame is responsible”.

Ombudsman Jim Biles says: “I note Sesame says Mrs H ultimately received more from the Highfield investments than she would have done if she’d left her money with Cofunds. But I don’t think that’s a relevant consideration in this case. As I’ve said, I think the evidence shows Mrs H wasn’t happy with the returns she was receiving on her Cofunds investments and would have done something else with her money even if she didn’t invest in Highfield. I’ve set out what I think is a reasonable benchmark for assessing what she might have got elsewhere and that’s the approach to be used in assessing whether she’s lost out.”

Additional compensation was also ordered to be paid to cover the court costs incurred by Mrs H through the legal action she brought to try and recover the money she was due from Highfield.

The final decision adds: “Mrs H also mentioned other costs, including travel and hotels, associated with her legal proceedings, although it seems these mainly relate to the case involving the property for which I’m not making any award. But if she did incur any additional and otherwise unnecessary costs purely in relation to the Highfield proceedings, Sesame should cover these in full as well. Again these are costs she wouldn’t have incurred if she hadn’t been advised to make the Highfield investments.”

Sesame was also ordered to pay £750 for trouble and upset caused.


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. So, although the client has lost no money and is in fact better off than if she’d left her investments via CoFunds in place, the FOS has decreed that Sesame must pay her compensation anyway, on the grounds that she MIGHT have done even better had she invested in something other than the Highfield scheme as an alternative to staying with CoFunds. Is that supposition remotely probable, provable or even justifiable?

    Gordon Bennett, when the FOS is handing down judgements like this (with an extra £750 slap just for good measure), there really is no hope. The adjudicator may as well have simply said We don’t like UCIS under any circumstances for any client, however insistent, however experienced and however well said UCIS actually performs, so any complaint from any client involving UCIS will be found against the adviser, guaranteed.

    By having tried (unsuccessfully) to claim additional compensation for costs including travel and hotels that were nothing to do with this particular complaint, it’s quite obvious she was trying to screw Sesame for every penny she thought the system would enable her to get.

    In fact, what it boils down to is that clients can now take to the FOS a complaint against an adviser not merely because a recommended investment has performed badly but because, with the benefit of hindsight, although it performed well, it didn’t perform quite as well as something else. That is a seriously worrying development.

  2. Julian
    Yes that supposition is provable.
    The process the FOS has followed is standard practice where an unsuitable investment has been recommended, which is to base compensation on using an appropriate benchmark for the invested amount and comparing this to the actual return generated.
    It does not actually matter whether the unsuitable investment outperformed the Cofunds investment; the point is that if a suitable investment had been recommended instead of the Cofunds investment, then the client would have obtained a higher return.
    The FOS judgement makes it clear that the adviser failed to determine that she met the requirements for the Highfield investment to be suitable and also failed to discuss all the risks, so the actual performance becomes irrelevant.

    • What you appear to be saying is that a “suitable” investment that performed dreadfully and perhaps lost the client money is, in the eyes of the FOS, better than an (arguably) unsuitable one (despite the client in this case having been insistent) that performed well and delivered a good return. Have I got that right?

  3. Whilst the wider facts may not be fully reported it seems clear that the FOS is offering a convenient conduit for claims management companies to slither through.

    I regularly see adverts stating “did you have investments with company X taken out between 1988 and 2005, if so you are probably due compensation”.

    How long before we see others stating “you do not not need to have lost any money we will still get you a pot of ‘compensation’.

    Surely it was never Parliament’s intention to set up a self-perpetuating body that regulates, dictates sits as prosecutor, judge, jury, etc with no right of appeal and a judicial review system that can only look at process and not the lack of common sense?

    We then hear the FCA grumbling that there are few young advisers joining our ranks.

    Wonder why?

  4. So what exactly is a suitable or relevant benchmark? I know the 8% cash assumption is slightly generous.

  5. I’ll read before I comment DRN8944850

  6. Ok, I’ve sped read it. I think it is a reasonable deicison under the circumstances. A difficult one for the FOS adjudicator and they rejected a LOT of what the complainent was trying to obtain.
    Short of the FOS being a fly on the wall, I don’t think they could have done much different. HOWEVER it has been possible to be a fly o the wall for over a decade or more. As Alan knows, Paulo started recording meetings (including the FSA staff themselves) in the early 00’s and we staretd in 2007. The ONLY complaint we have had whcih nearly went to the FOS was withdrawn by the solicitor handling it rather than pursued after the recordings had been listened too.
    Even the FOS in a recent article reccomend phone calls are recorded. I still can’t understand why meetings aren’t encouraged to be recorded (they cna be stoppefd and staretd) and can be recorde on pretty mcuh ANY smart phone and transferrred to back office systems and stored.

  7. “People buy people”. Consuemr sact on what we say and the messages our faces are sending, they do NOYT act on a 50 page suitability report or a file note. Until the FOS see what was said face to face, they will never know the truth of who is the crook,….. the adviser or the complainent and those genuine complaints which need to be resolved for BOTH parties will be the ones who loose out from what is ending up an adversarial system when it should eb a mediated solution. Hence wy our client agreements (discussed with the FCA and commented on in the press at the time, include a mediation process to try and maintain the client relationship and find a solution both parties are happy with

  8. Extract from our client agreements as discussed with the FCA
    1. Mediation
    We are under an obligation to minimise the need for complainants to make unnecessary claims through the Ombudsman or Courts and to ensure that issues are resolved in a timely manner. To this end, we have established a Mediation facility to be used prior to referring a case to the FOS or issuing proceedings. We reserve the right however NOT to make this service available if you have already referred matters to the FOS or issued legal proceedings. This procedure is in accordance with the Centre for Effective Dispute Resolution (CEDR) Model Mediation Procedure We suggest a CEDR trained mediator such as XXXXXXXXXXX who is a qualified Barrister with experience of Financial Services Issues including the Ombudsman’s service and she is the default choice http://www.XXXXXXXXXXXX Another mediator may be chosen by mutual agreement. To initiate the mediation process a party must give notice in writing (ADR notice) to the other party(ies) to the dispute requesting mediation with a copy to the mediator. The mediation should start no later than two weeks after the date of the ADR notice, subject to the availability of a mediator. More information can be found at or on request from Financial Escape Ltd.’s compliance officer. Unsuccessful mediation outcomes, should not restrict your ability to refer your complaint to the FOS (you have six months from our Decision Letter to do this) or issue court proceedings.

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