Advisers must make sure they have coherent external evidence which proves they acted on an execution-only basis, according to a ruling by the Financial Ombudsman Service.
The Fos has ruled in favour of an IFA firm following a complaint by a husband and wife which alleged the firm’s adviser gave inaccurate advice about their proposed bond investments.
The ombudsman found the firm had acted on an execution-only basis and therefore it did not have a duty to advise on the suitability of the investments.
The decision overturns the Fos’s first provisional decision, which ruled in favour of the wife because she did not have sufficient knowledge to understand the products and it was assumed, as a result, she had received advice.
Adam Samuel, a compliance consultant who helped the firm with the case, says the key to the case is advisers must be able to produce external evidence which backs up their claim they acted on an execution-only basis.
He says the firm won for three reasons:
- The consumers complained about a product which did not go through the firm’s books, suggesting they may have been in the habit of dealing through an execution-only brokerage;
- The proposal forms and other marketing literature came from another firm, which was consistent with a customer walking into the firm and saying, “I want this product”. If the proposal form had belonged to the firm the outcome would have been different; and
- The execution-only form was jargon-free.
Samuel states: “A firm must have coherent external evidence which contradicts the usual assumption that investments are sold and not bought. If they have that material, they should ask for a hearing and if they are telling the truth they will win.”
If advisers merely say they acted on an execution-only basis without evidence to support this claim, Samuel says they will lose the case.
The ombudsman’s final decision states: “It would be fair to say that these transactions bear the hallmarks of an ‘execution only’ transaction; that is, investments sourced by the investors themselves, discounts provided on the commission paid to the firm and then the applications merely processed through a regulated firm.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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