Quilter Financial Planning has been told to pay compensation to a couple who invested their SIPP into the failed Harlequin property investment scheme.
The couple remortgaged their home with an interest-only loan to invest in off-plan developments in the Caribbean through Harlequin.
Mr and Mrs H, as referred to by the Financial Ombudsman Service (FOS), sought advice from TBG Financial, an appointed representative of Quilter (previously Intrinsinc Financial Planning), about their self-invested-personal pension (SIPP). A TBG adviser recommended they invest in the Harlequin scheme.
In 2009, the couple paid £29,000 deposit to Harlequin, £90,000 for their other investments and £100,000 to clear their existing mortgage.
However, the Harlequin property was never built. An adjudicator at the time said: "It is highly likely that they've lost all the money they paid as a deposit."
Harlequin took about £400m of mainly pension investors' money to develop Caribbean villas. Advisers - or ‘agents' - who sold Harlequin earned commissions of up to 15% of the investment. Ultimately, the villas were never built, and the investment is now worth nothing.
'Potential repayment risks'
While the TBG adviser was not authorised to give advice on unregulated overseas investments, the ombudsman ruled the complaint should be upheld on the basis that mortgage advice was given.
She said: "Even though the advisers could only provide recommendations about Mr and Mrs H's mortgage, because of its reliance on Harlequin, I believe that he ought to have highlighted the potential repayment risks more specifically to them."
The ombudsman added that it was not because the Harlequin investment failed that compensation was due, but rather because she did not feel the adviser had reasonable grounds to believe a suitable repayment vehicle was in place.
As a result, Quilter has been asked to repay the £29,000 that was borrowed from the deposit for the Harlequin property. It also has been asked to repay the difference between the amount borrowed on an interest-only basis.
Quilter declined to comment but Professional Adviser understands that in these cases, the advisers were not authorised to provide investment advice and therefore they do not have involvement in the purchase of Harlequin.
PA also understands the investment activity was driven solely by the customer and no remuneration/fee of any description was received by either the business or the adviser.
