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.