• The Claims Bureau

Adviser to Pay Out Compensation After Failed Offshore Investment Advice

Updated: May 20


The Financial Ombudsman Service has ordered Insight Financial Associates to compensate a client after transferring their pension without the relevant due diligence checks.


The client who FOS identify as Mr. H was advised to transfer £66,318 of his personal pension to a self-invested personal pension (SIPP) and to then invest a 45% stake in an ‘off-plan’ apartment in Cape Verde on the understanding that that would later purchase the remaining 55% with a view to renting or selling the property at a profit.


The overseas investment, TRG, a luxury hotel chain based in Cape Verde has attracted many UK citizens to invest their pension money, Mr. H being one of them. Mr. H first complained to Insight regarding the advice in 2018 after new financial advisers had told him his investment had not been unsuitable and was high risk.


Although operative, FTAdviser has previously reported that many of the investments from TRG over the last decade were not receiving the returns they thought they had been promised and often falling short of the fund for even the basic annual SIPP fees.


In reply to Mr. H, Insight rejected the complaint on the basis that they had only provided advice on the SIPP, not the overseas investment. However, the FOS referring to the Financial Conduct Authority rules and guidelines say that it is not possible to distinguish between the two.


Rules at the times of the transfer reiterated by the regulator in 2013, stated: "There are clear requirements under the FSA Principles and Conduct of Business rules and also in established case law for any adviser, in the giving of advice, to first take time to familiarise themselves with the wider investment and financial circumstances. Unless the adviser has done so, they will not be in a position to make recommendations on new products.”


The FOS said the sole reason for the pension transfer to the SIPP was to facilitate the property investment which without the diligence checks by Insight wrongly advised Mr. H.


The FOS’s adjudicator felt the Cape Verde property was not a suitable investment because it pooled to much of Mr. H’s investment into a single asset that was illiquid, potentially difficult to sell and added significant extra cost.


The adjudicator found that Insight had not gathered enough information to give advice in 2009. Insight’s fact find did not have any information about Mr. H’s pension objective, cash flow and current assets or a completed risk questionnaire. Although Mr. H had been introduced to it by a regulated mortgage broker Insight should have still collected relevant information before advising Mr. H on his investments.


Insight argued that Mr. H did his own due diligence by checking the property investment and should have been aware that the investment was unsuitable when he switched to a different property and when the rental income failed to meet his original expectations. After Insights rejection from the adjudicator’s initial ruling of unsuitable advice, the case was passed to the Ombudsmen Terry Connor for a final say.


Mr. Connor states that any due diligence carried out on the investment should have formed part of the advice Insights should have given Mr. H. The fact that Mr. H was unable to fund the purchase balance of the initial property and didn’t receive the rental income originally anticipated underlines the investment was unsuitable. Additionally, the numerous risks posed by the single investment had not applied to Mr. H’s previous personal pension which was held in standard assets like shares and bonds could have been sold readily on the stock market without much notice.


Furthermore, he said the Cape Verde property was like UCIS investments which according to FCA rules was high risk, illiquid and not subject to the usual protections that a standard investment would be, such as the Financial Services Compensation Scheme.


The Financial Services Authority (FCA’s predecessor) had issued an alert in 2010 regarding UCIS, which outlines examples of suitable and unsuitable advice.

A suitable example involved a client’s exposure to between 3 and 5% of their retirement provisions to a UCIS after robust diligence and an unsuitable example, involved placing all the client’s assets into a single UCIS, which applied to Mr. H. Although the alert was after the advice given to Mr. H in 2009, the ombudsmen outlined that existing principles applied and was relevant to the case.


Given the fact that relevant information had not been completed to Mr. H’s current assets and was not made aware of the costs and risks the advice was unsuitable and agreed that Insight did not properly discharge its regulatory obligations to Mr. H when transferring his funds to a SIPP and the overseas investment. This also had a huge impact on Mr. H’s health causing him a great deal of stress and anxiety.


Resulting in the decision by the ombudsmen, Insight have been ordered to compare the performance of Mr. H’s investment with the FTSE UK Private Investors Total Return Index and pay out the difference plus interest. They have also been told to take ownership of the illiquid investment by paying a commercial value acceptable to the pension provider.


If Insight are unable to purchase the investment, the actual value should be assumed as nil for the purpose of calculation they will pay an amount equal to five years of SIPP based fees based on the current tariff, in addition to the compensation.


If you have been affected by the SIPP and Offshore Investment services offered by Insight Financial Associates Limited and would like to discuss how we may be able to help give us a call on 01903 868251.


Information in this article was sourced from

https://www.ftadviser.com/regulation/2020/04/14/adviser-to-pay-out-after-rubber-stamping-offshore-investment/

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