Financial advisers can be deemed to have given advice and be held liable for giving advice – even where they believe that they have clearly stated that they are acting on an execution-only basis.
A recent Financial Ombudsman Service (FOS) decision found that a firm had advised a client after it set up a Self-Invested Personal Pension (SIPP) on an execution-only basis to hold an unregulated property asset.
The client ‘Mr E’ had been approached by a property agent to invest off-plan into a Harlequin hotel development in the Caribbean. Mr E, who knew the agent and had previously worked with him, agreed to use his pension fund to back the development. The agent was not regulated and introduced Mr E to Grosvenor Financial Consultants, to set up a SIPP to facilitate the investment.
Grosvenor set up the SIPP and invested over £30,000 in the Harlequin property on Mr E’s behalf. It provided him with a letter which said it had acted on an execution-only basis.
The Harlequin development subsequently failed and Mr E’s investment became virtually worthless. He brought a complaint against Grosvenor, which it rejected as it said it had not offered any advice about the suitability of the investment.
The FOS investigated the claim and concluded that Grosvenor had in fact advised Mr E. It ordered the adviser to compensate Mr E for his losses. The FOS said that Grosvenor gave advice as to how Mr E could invest in Harlequin through a specific SIPP provider. It referred to guidance from the Financial Services Authority in 2013 which said that advisers were mistaken if they think “they do not have to consider the unregulated investment as part of their advice to invest in the SIPP and that they only need to consider the suitability of the SIPP in the abstract. This is incorrect.”
James Burgoyne, Director – Claims & Technical, Brunel Professional Risks believes the case highlights the attractiveness of an “all-or-nothing” approach, given the present regulatory willingness to overturn execution-only statements. “Grosvenor assumed as it had not advised on the suitability of the Harlequin investment that it was safe to work on an execution-only basis. However in the event the FOS considered that the facts of the matter were not consistent with its conception of execution-only, and also pointed to the execution-only letter having been issued after the investor had signed papers to action instructions.”