A Wales-based financial advice firm has been instructed to compensate a former client after it allowed them to open a SIPP that was used to invest into unregulated scheme Harlequin Property.
The Financial Ombudsman Service (FOS) has instructed Kingswood Financial Advisors to compensate a client after it opened a self-invested personal pension (SIPP) that was used for a Harlequin investment.
This is not the first time Kingswood has been asked to pay out for ombudsman complaints related to Harlequin. In July, RP’s sister publication Professional Adviser revealed the FOS had upheld 22 Harlequin-based complaints against it at the time of writing.
In 2010, Mr J – as the FOS referred to him – was introduced to the Glamorgan-based advice firm by a financial adviser who was an appointed representative of another business. Mr J was then advised by Kingswood to transfer his pensions benefits he held in a personal pension plan into a SIPP. The transfers took place, and the pension money was subsequently used to invest in Harlequin Property.
When the case was first referred to the FOS in April 2016, Kingswood argued Mr J had already received advice from another firm, and that he had already paid a deposit and signed contracts to acquire an overseas property. It said the only option open to him was to transfer into a SIPP.
Kingswood also argued it had discussed the drawbacks of investing into a SIPP, maintaining it did not have any agreements or associations with Harlequin, and that the failure of the investment was an unjust burden to place on the business.
However, an FOS adjudicator said Kingswood should have advised Mr J not to transfer his pension into a SIPP, and should have explained the risks of a high-risk, speculative investment. They also pointed out Mr J signed the Harlequin contract after Kingswood had recommended the transfer, suggesting he otherwise would have been dissuaded from going ahead.
After Kingswood did not submit further evidence, the FOS concluded the firm should compensate Mr J by putting him back as close to the position he would have been in had he not invested in Harlequin.
A second ombudsman said Kingswood was obligated to act in its client’s best interest, which they did not believe it did by only advising on the SIPP.
They added: “I am satisfied the advice to transfer to the SIPP was unsuitable. The investment was too risky for Mr J. He was recorded as having an attitude to risk of 8 or 9 on a scale of 1 to 10. This was based on his answers to four questions, each of which was given a numerical rating. But I’m not convinced this was an accurate assessment.”
Unbuilt Caribbean villas
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.
Harlequin has argued the clients it dealt with were introduced to the company by someone else, and had already made the decision to invest with an adviser not associated with it. The total costs to the firm are unknown.