The Financial Ombudsman Service (FOS) has ruled that an IFA should repay an investor £150,000, the amount he recommended he invest in a troubled unregulated collective investment scheme (UCIS).
The adviser, Peter Morris, recommended the client invest the money in the Stirling Mortimer No 4 Cape Verde fund in 2007. Further investments of £52,000 and £28,000 were made into the fund at later dates.
The fund has been beset with problems, including heavy falls in its value after Stirling Mortimer struggled to find buyers for the luxury Cape Verde -based properties it invested in following the global financial crisis.
According to Morris, the client scored himself as a nine on a scale of one-to-ten scale when asked ‘how speculative are you prepared to be when considering investments?' He also ticked the box corresponding that he was an experienced investor.
However, since the financial difficulties experienced by the fund, the client has complained that the recommendations were unsuitable in the first place. He also said that the funds were sold to him on the basis that they were "no or low risk".
The adviser said that the client's attitude-to-risk had been established by a fact find and that the risks of investing in the fund had been brought to the client's attention.
But the FOS adjudicator considered that the complaint ought to be upheld because the Cape Verde fund was a high-risk UCIS, the risks of which the client would have been unable to understand.
The Ombudsman also found that the reasons for the advice to invest in the scheme were not made clear to the investor, and that the caveats about the investment contained in the point-of-sale literature were dismissed by the adviser.
The investor would not have invested such a large portion of his pension in the fund if he had known the "true risk" of the move, the Ombudsman said.
A spokesperson for Regulatory Legal, which has clients invested in Stirling Mortimer, said: ""Once again we are seeing Stirling Mortimer funds being recommended as low-risk. Whenever this is the case, the investor will win their claim.
"Our concern is that the vast majority of investors have been advised in this way through firms who are either no longer authorised or do not hold insurance. Once again the FSCS and, by implication, the industry will suffer due to advisers grabbing at the high level of pre-RDR commissions."
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