SIPP operator to compensate two clients for unsuitable Cypriot property investments

Financial adviser Mr A, as referred to by the ombudsman, advised Ms D and Ms F to invest in a property development scheme in Cyprus that he was planning. He then advised them to transfer their pensions into a self-invested personal pension (SIPP) with Yorsipp. The advice given to both clients occurred in 2007 and 2008.

Later, Mr A's firm MPFM was taken over by a Mr B, but Mr A remained involved in the overseas property scheme. Then in early 2010, The then Financial Services Authority (FSA) reviewed some of the pension switch advice that MPFM had given. As a result, later that year the firm was required to undergo a "skilled person" review in relation to advice given to invest in the scheme, which concluded some advice given to MPFM clients was unsuitable.

It was found Mr B and MPFM did not have enough money to settle clients' entire losses and so partial offers were made to several investors. Both Ms D and Ms F managed to recover £12,458.

A law firm that was representing Mr B started to act for some of the investors and carried out investigations on their behalf before making complaints to Yorsipp about its conduct. The law firm complained Yorsipp paid money from Ms D's and Ms F's SIPP to Mr A's lawyer in Cyprus - Mr C - without understanding what it was paying for or what it was obtaining for them in return for the money.

Yorsipp thought the investment was to be made in the property scheme by means of investing in a limited liability Cypriot company, which the ombudsman called Company 2. However, that company did not and has never owned the land to be developed. Later on, Yorsipp said that Company 2 was struck off the Cypriot register of companies in 2016.

According to the ombudsman, it was not clear what happened to the money that was paid out of Ms F's and Ms D's SIPP accounts. "It was paid to Mr C's law firm and as far as I am aware it has not given a precise accounting for the funds it received," they said. 

Yorsipp's response

In response, Yorsipp argued that both complaints were made too late and should therefore not be considered. An investigator at the time did not agree with Yorsipp and said the complaints should be upheld. Yorsipp disagreed and so the cases were referred to the ombudsman.

In May 2019, provisional decisions were issued for both parties that said Yorsipp did not act fairly and reasonably in all of the circumstances. The ombudsman felt its obligation as a SIPP operator included deciding whether to accept or reject an investment and that it was required to meet its regulatory obligations by identifying instances of potential consumer detriment.

However, lawyers acting for Yorsipp did not agree. They said Yorsipp "satisfied the scope of its duties by complying with the express instructions it had been given".

They added: "Yorsipp understood that Company 2 was intended to act as the purchaser of the target development land. And the funds were transferred to Mr C's law firm which… was acting in that land purchase and so it follows that the funds were transferred in order to obtain good legal title as part of the conveyancing process."

They also argued it was not fair or reasonable to expect Yorsipp to underwrite the complainant's advisers for their failings by not investing the money as expected.

Regulatory obligations

After reviewing the cases again, the ombudsman still upheld both complaints. It said: "I consider Yorsipp was required to meet its regulatory obligations by identifying - and preventing - instances of potential consumer detriment.

"This should not be confused with providing advice on the suitability of an investment or overall arrangement for a consumer's needs and circumstances. The fact that Yorsipp was not authorised to give advice did not preclude it from meeting its regulatory obligations by thinking carefully about the business it was accepting."

It said Yorsipp could have declined to accept Ms D's and Ms F's instructions without providing her with investment advice. It should therefore compensate the clients by giving them the "actual value of the investment" had the advice been suitable.

"The normal approach is to compare Ms F's [and Ms D's] present position with the position she would have been in but for the wrong we are trying to put right."

Professional Adviser has contacted Yorsipp for a comment. 

• Tweet  
• Facebook  
• LinkedIn  
• Send to  

• Topics
• Companies
• Investment
• Financial Services Authority
• MPFM
• Yorsipp
• Cyprus
• FOS