UK IFA ordered to undo ‘inappropriate’ illiquid investments

Added 30th June 2016

A UK advisory firm must compensate a client it advised to give up a guaranteed cash sum and annuity rate to invest in illiquid storage units, the Financial Ombudsman Service (FOS) has ruled.

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In a final report, the FOS revealed that the client, Mr F, had pension savings worth over £50,000 which included a guaranteed cash sum (GSM) and a guaranteed annuity rates (Gar).

In 2013, he approach advice firm Anthony William Morrin explaining that he wanted to invest the sum into “cautious assets.”

The 50-year-old fitter, who at the time earned £24,000 per year, was advised to transfer his pension plan in to a self-invested personal pension scheme (Sipp) and invest £22,500 in Store First and £28,754 into the Vanguard Balanced Fund.

The investments went on to lose Mr F money after which he complained to the FOS.

The Ombudsman has now held up the complaint and has ordered the firm compensate the client and put him back into the position he would be in had he not transferred his pension plan.

"The sale of the Store Pods could only take place if buyers could be found. In my opinion the proposed investments were inappropriate and were unsuitable for an investor such as Mr F."

Recognising that there may be an issue selling the Store First investment, the FOS also ordered Anthony William Morrin to buy the asset itself if this proves the case.

‘Inappropriate’ advice

In its ruling, the Ombudsman said the investment proposed was “inappropriate” for the client and failed to take into account that the GSM and the Gar – both considered “valuable benefits” – would be lost in the process.

The ombudsman also said the advice to invest in Store First was inappropriate because returns were not guaranteed and there was a liquidity risk, something which the adviser failed to make clear in the suitability report.

Difficult to sell

He also added that the advisers also failed to make Mr F understand that the Store Pods would be hard to sell in a short amount of time.

“The sale of the Store Pods could only take place if buyers could be found. In my opinion the proposed investments were inappropriate and were unsuitable for an investor such as Mr F.

“If Mr F wished to go ahead and invest in the Store Pods he should have been asked to sign an insistent client agreement confirming that he knew what the loss of the GAR would mean and that the Store Pods could be difficult to realise if he wished to sell them,” said Ombudsman Adrian Hudson. 

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About Author

Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.

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