Investment manager

Caveat emptor? bdhSterling asked to compensate an informed customer for an unregulated program

The complaint comes from an investment manager at a venture capital firm, Mr I, who was looking for better returns on one of his pension schemes worth around £ 130,000. In 2012, his advisor bdhSterling recommended transferring the plan to a Self-Invested Personal Pension (SIPP), to facilitate an unregulated investment of £ 123,000 in Brazilian timber plantations through Global Forestry Investments (GFI).

A 2008 discovery revealed he was earning a salary of £ 170,000, had a house worth around £ 1million without a mortgage as well as a second overseas property worth £ 250 £ 000. The client had also invested in hedge funds and stocks worth around £ 445,000, a defined benefit pension that was to pay him a guaranteed income of around £ 40,000 a year from age 60 and a another pension worth around £ 95,000. Mr. I’s situation would have been similar in 2012.

A few years later – after poor returns on investment and the investigation by GFI directors for Serious Fraud Office (SFO) fraud – the client claimed to have made numerous unsuccessful attempts to contact the advisor in order to recoup his investment. .

In 2019, the client lodged a formal complaint, which was confirmed by an FOS investigator who considered that the advice “to invest such a large sum in an unregulated and niche investment” was not suitable for the customer’s situation.

The investigator’s findings were rejected by bdhSterling, who pointed out that the client had registered as a sophisticated and wealthy investor, with “the willingness and ability to invest adventurously”. But the investigator stood firm on the decision.

When no agreement could be reached, the complaint was then forwarded from an investigator to an ombudsman, who ruled in favor with the client despite confirmation that Mr. I had a greater capacity for risk and loss, and that the move to a SIPP was “okay.”

The mediator added: “However, I think the advisor could have achieved Mr. I’s goals without advising him to invest such a large sum in an unregulated, non-standard long-term investment that promised high guaranteed returns and minimized risks. “

They also pointed out that although the advisor described the investment as a high risk product in a report to the SFO, he characterized it as medium risk to the client in a suitability report.

He also found the advisor’s choice of investment to be wrong given the client’s need for promised fixed returns and the possibility of withdrawing the investment (including a 5% mark-up) after three years. “The likely need to access funds earlier at any time was foreseeable even though he had other assets.”

In addition, the withdrawal of funds could have been problematic given the nature of the investment, said the mediator. “Niche investments like this often have liquidity issues because there is usually no secondary market.”

The ombudsman also questioned the adviser’s high confidence in the information provided by one of the directors of GFI and the company that introduced the adviser to GFI, “which had a vested interest in this investment”. In addition, the mediator was “not convinced that Mr. I was an informed investor who would have had the necessary knowledge to fully understand this investment, whether through his professional or personal investment experience”.

As a result, the mediator ordered bdhSterling to pay a maximum of £ 160,000, plus interest, to the client as compensation.

Asked for comment, bdhSterling said the advisor in question had not been associated with the firm since 2016 and had complied with the mediator’s decision.

Source link