Network Pi Financial has lost another case at the Financial Ombudsman Service (FOS), this time over advice one of its appointed representatives gave to a World War 2 veteran to invest £90,000 in an unregulated collective investment scheme (UCIS).
The client, who has since died, was advised by Brian Jones, the ex-director of Clwyd-based Ravencourt Financial Services, to invest in the £40m Channel Island Stock Exchange listed Stirling Mortimer No 4 Cape Verde fund, a cell of the Stirling Mortimer Global Property fund.
The unregulated scheme, which invests in right to purchase contracts for land and property in Cape Verde, has been rocked by problems including heavy falls in value and a series of legal cases it has brought against its former lawyers over the alleged misappropriation of money.
Representatives of the client turned to law firm Regulatory Legal who helped them complain to the FOS about the advice their relative had received.
In its ruling on the matter the Ombudsman said that it was not reasonable for Jones to recommend such a high risk investment given the client's financial circumstances and health requirements.
The FOS also said the advice was unsuitable because the client did not meet the criteria necessary for him to have been promoted such a scheme.
Pi Financial argued it was not at fault because the appointed representative who gave the advice contravened the conditions that applied to his permissions to carry on investment business by using his power of attorney to invest the client's assets into the Stirling Mortimer fund.
The FOS disagreed - saying that the network is responsible for anything done by its appointed representative while carrying out investment business.
It has ordered Pi Financial to put the investor's estate as back in as close to the position it would probably have been in if the recommendation to invest in Stirling Mortimer had not been made, and put the surrender value of the investment at nil.
Pi chief executive Tim Sutcliffe said the FOS decision "rides all the way through the contracts networks have with their ARs".
"We contended that the adviser acted in a personal capacity so we weren't responsible. The FOS decision has serious repercussions for the industry," he said.
This is at least the third time Pi Financial has been forced by the Ombudsman to pay redress over advice to invest in Stirling Mortimer funds. The previous cases came to light last October and November.
Last September the then regulator the Financial Services Authority (FSA) fined the network £58,300 for recommending hundreds of clients invest in UCIS or structured products that were "clearly" unsuitable.
Some 168 clients were advised by Pi Financial to invest a total of £6m into UCIS, the FSA said.
Engagement and influence
Win free places at the awards
Our weekly heads-up for advisers
Beware ‘investor behaviour penalty’
Develop ‘soft skills’