Financial advisers who facilitate execution only transactions should take careful note of a recent judgement from the Financial Ombudsman Service (FOS). In this case, Mrs H was visited by an adviser representing LP Financial Management, but who was in fact an agent of Harlequin. She transferred £65,000 from various pension schemes, including a final salary occupational pension scheme, to a Self Invested Personal Pension (SIPP), and then invested most of that sum in a Harlequin property investment.
In this case, the FOS has found in the client’s favour even though the adviser attempted to put in place a number of safeguards surrounding the transaction, which included:
• Obtaining the client’s signature on a form, which included a box ticked to confirm that no advice had been given about either the SIPP itself or the underlying investment
• Including a declaration in the form to the effect that she had made her decisions based solely on information supplied by the provider
• Incorporating risk warnings into the declaration about the possibility of her losing money on the investment
• Explaining to her that the property investment may be difficult to sell, and that the investment was not covered by the Financial Services Compensation Scheme
Ombudsman Roy Milne ruled that he believed Mrs H genuinely thought she was receiving advice. “A few basic checks would have shown that Mrs H had been persuaded to transfer all of her pensions to the SIPP,” said Mr Milne in his judgement. He added that “Mrs H did sign some declarations to say that she had not received advice. But, she has explained that she was referred to a pensions expert. In my view, it’s likely that she thought she was receiving advice.”
Mr Milne also remarked that it was unusual for an investor to transact pension transfer business on an execution only basis, and that the firm should have taken steps to ascertain that she understood the transaction.
Tenet also recently fell foul of the FOS in an execution only case. It assisted clients in investing in a golf course development in Spain via their SIPP. In this instance, the ombudsman making the final ruling decided that the clients did not possess the necessary investment expertise, and that the advisory firm owed them a duty of care and should have warned them that the investments they were considering were unsuitable.
Although the Financial Conduct Authority (FCA) has set out a three point plan for firms to follow in execution only transactions, many firms remain wary of conducting this type of business, largely because they are worried about the stance the FOS might take. The chief executive of the trade association the Personal Finance Society has recommended that his members do not arrange this type of transaction.
The FCA’s advice in this area is that firms should:
1. Give a clear and concise recommendation, ensuring the client understands what is being recommended
2. If the client indicates that they wish to take an alternative course of action, clearly explain the risks involved with the route they wish to take
3. Clearly document the fact that the client has chosen to go against the professional advice they received
This case seems to suggest that firms should consider one additional thing before proceeding – can they demonstrate that the client has the necessary knowledge to make their own decisions?
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.