SSAS trustees win FOS case against advice firm

The Financial Ombudsman has ruled against an advice firm over investing in an unregulated collective investment scheme. Professional Financial Services provided advice to the trustees of a SSAS pension scheme.The fund was a “very narrow, highly specialised fund”, which invested in a small number of nursing homes in Germany.The trustees told the FOS they thought that the fund was “too high risk”.An adviser from PFS met with the trustees in May 2008 and their attitude to risk was “recorded as adventurous” and they wished to take a “more aggressive approach to investments in the SSAS”, the FOS said in its report.The FOS reported the trustees:• had £150,000 available for investment. That left £100,000 that could be withdrawn without market risk or penalty.• Commission to be paid on the investment was £12,000.• The trustees were to be treated as sophisticated investors.• They were directors of their own company.• The company and individual directors were practically debt free.An investment was recommended by the firm in Merchant Place Property Partnership 64 (MPPP64) - for the £150,000 available to invest.There were a number of risks set out in the memorandum for the fund, the FOS said, including:• The valuation of property investments was difficult.• The structure of the investment also meant there was no ready market for it. The fund would use borrowing to buy 75% of the properties.• This was an unregulated scheme.• The risk warnings said that investing in the fund may expose investors to significant risk of losing their entire investment.Ombudsman Roy Milne said putting £150,000 into a single unregulated investment was ‘unsuitable’ and although the risks had been all set in a memorandum, it was “high risk”.He said: “I don’t accept that the trustees were sophisticated investors. They ran their own business, but I haven’t seen any evidence to show that they had experience in investing. I’m satisfied that they were relying on advice from PFS.“So, I think PFS should have done more to explain the risks of investing in MPPP64 to the trustees. It wasn’t enough to simply provide the memorandum. This was a long document providing a lot of detail about the investment. PFS was providing advice to the trustees and should have properly explained the risks involved with the investment.”PFS made a number of counter-points in laying out its argument to the FOS, including:  It should not be assumed that, because the fund was a UCIS, it was necessarily high risk.  The advice was given in 2008. It should not be judged now with the application of hindsight.  The fund was provided by a reputable firm. It was a property fund. Nursing homes were thought to be a good investment at the time. Germany was a strong economy.  It was much lower risk than some other unregulated funds.  The adviser knew the circumstances of the trustees well. They had previouslyinvested in a UCIS, which did well.  The risks of the fund were fully explained. The fund prospectus said the fund was low risk. But the adviser described it as medium to high risk.  The SSAS may have been larger than it thought – it may have been over £600,000 when the investment of £150,000 in the UCIS took place. The trustees said that the investment was affordable. PFS was entitled to take that at face value.  There was a fact find and a suitability report. The attitude to risk was “adventurous”. The FOS said there was a dispute about whether the suitability report dated 5 June 2008 was received by the trustees. Mr Milne said for compensation his aim was to put the SSAS as “close to the position it would probably now be in if suitable advice had been given”. If there was a loss, PFS should pay an amount into the SSAS to increase its value by the total amount of the compensation and any interest, he said.

SSAS trustees win FOS case against advice firm

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