The Falcon Group, now part of Lighthouse Group, recommended in February 2007 that Mr D invest part of his pension, valued at the time at around £1m, in a Stirling Mortimer fund.
Stirling Mortimer Funds are registered, closed-ended Guernsey domiciled Funds with limited liability offering clients investments typically linked to property developments.
Mr D’s pension fund already included the commercial property used by his business, which was valued at around £760,000 with a mortgage of £37,000 outstanding.
Falcon recorded that Mr D, then aged 54, was prepared to take 50% medium/high and 50% high risk with the investment of his pension fund.
Illiquidity
In her provisional decision, the Ombudsman said: The investment with Stirling Mortimer represented only around 8% of Mr D’s pension fund – and a smaller percentage of his overall wealth. I thought that Mr D was willing, and in a position, to take a degree of risk with some of his pension fund. And while the Stirling Mortimer investment added to potential liquidity problems, the amount invested was only a small part of Mr D’s pension fund.
“But I didn’t consider it wise to add another property-based asset to a [self-invested personal pension] portfolio which, because of the business property used by Mr D’s business, was already heavily weighted towards commercial property. I said that I thought that most advisers would have recommended diversification.
“And I concluded that the investment in Stirling Mortimer, a professional investor scheme, was not suitable because it increased Mr D’s exposure in commercial property,” she said.
Disagreement
Lighthouse, the parent company, however disagreed with the Ombudsman’s provisional decision saying that “Falcon was entitled to rely on the information it had obtained from Mr D”, as he had “signed a financial review form” listing his assets.
The firm said that Stirling Mortimer, which it accepted was a high-risk investment, was a professionally managed overseas investment scheme focused on property in the leisure industry and was a significantly different type of asset to the commercial property directly owned by Mr D’s pension.
They stated that the percentage of Mr D’s pension invested in the scheme only represented 7.5% of his net worth, with a report obtained from an expert suggesting that up to 12% could be invested in such schemes, if the client had the appropriate risk appetite.
Ombudsman rebuttal
In her response to Lighthouse, the Ombudsman said that it wasn’t the percentage invested in the scheme that swayed her opinion in the provisional decision, “it was more that the investment was in a property-related asset when Mr D’s pension fund was already heavily weighted towards commercial property”.
“Of Mr D’s pension fund of £1m, around 72% was in the commercial property used by his business. Because of the high percentage already tied up, I consider any further investment in any property-related asset to have been unsuitable,” the Ombudsman said.
Compensation
The Ombudsman determined that Mr D should be put as close as possible into the position he would likely be in now if he had been given suitable advice.
