An independent adviser has been told he will not have to compensate a client he recommended invest in a Keydata product, even though an ombudsman ruled he had given unsuitable advice.
In a provisional decision by the Financial Ombudsman Service (FOS), it was outlined how a 'Mr W' was advised to invest £15,000 in the Keydata Secure Income Bond 3, held by SLS Capital, in 2005.
Despite reaching the conclusion the advice was inappropriate and the client did not have the appetite for the risk involved, the FOS said it was the "misappropriation" of funds within the bond that was the main cause of his client's loss.
"While the IFA was wrong to recommend that Mr W should invest a proportion of his capital in a Keydata bond - and Mr W has undoubtedly suffered as a result - the misappropriation of the Keydata SLS funds means that a court might not award compensation in such a case," the FOS's decision reads.
"This is not a case where the IFA had a complete disregard for the interests of his client. Accordingly, in the particular circumstances of the case, I conclude that it would not be fair on the IFA in this case to make an award."
Because his investment was made outside of an ISA wrapper, Mr W had been unable to get any compensation through the FSCS as that was only available to investors who relied on the mis-statement in the Keydata brochure that the bond could be placed in an investment ISA.
In the FOS's provisional decision, it states it was also "important to avoid the benefit of hindsight in the assessment [of the case]", referring to the FSA's current negative view on traded life settlement policies.
But he added the IFA should still be held to account for his advice.
"It is my conclusion that this investment was not suitable for Mr W. He did not wish to take any significant risk with his investments.
"The bond was not a proper alternative to a cash fund or building society or similar cash deposit. It involved risks to capital that were material and made it unsuitable for investors such as Mr W."
However, he did recognise the fact that the IFA had recommended the Keydata bond as part of a wider range of investments.
The client invested £15,000 with Keydata, but a further £85,000 was distributed between a mortgage reduction, cash and various other investments.
The provisional decision is subject to further comments and evidence the FOS may receive from both parties by 30 April.
Moves to overweight equities and fixed income
The Big Interview: Focus on ethical investment
View from the front row
'No control or oversight'
359 new customers in 2018