FOS upholds two Keydata complaints against IFAs
The Financial Ombudsman Service has provisionally upheld two complaints against IFAs who recommended clients invest in Keydata products, but has only awarded compensation in one case.
The Financial Services Compensation Scheme had previously rejected claims in both cases as it said the losses were caused by the misappropriation of SLS assets, which issued the bonds that backed Keydata products.
Compensation has been paid to investors by the scheme in cases where they relied on misleading statements in Keydata’s brochure that the bond could be placed in an investment Isa.
Both FOS cases relate to recommendations to invest in Keydata in 2005.
In the first case, an unnamed adviser recommended clients invest £60,000 in the Keydata secure income bond issue two.
The clients, identified only as Mr and Mrs K in the provisional decision, referred the case to the FOS on the basis they had understood the bond was guaranteed by HSBC.
The IFA noted Mr and Mrs K wanted an investment term of up to five years, and that based on their descriptions of attitudes to risk, they were cautious investors.
In the provisional decision FOS principal ombudsman Tony Boorman (pictured) says he doubts whether such a fund would have been suitable for anyone other than experienced retail investors, and certainly not for Mr and Mrs K.
He says: “Indeed, in my view the advice the IFA gave to Mr and Mrs K to invest in the Keydata bond demonstrated a complete disregard for their interests.”
Boorman says while Mr and Mrs K are “innocent victims” that have “suffered very significant losses”, the IFA should be held to account for the poor advice and not for the misappropriation of SLS funds.
His provisional decision is for the IFA to pay Mr and Mrs K the capital invested less any withdrawals, distributions of capital or pre-tax income.
The IFA also has to pay a return of 4 per cent from the time of the investment until November 4, 2008, and a return of of 2.5 per year after that date compounded annually from the date of investment until November 13, 2009 when Keydata defaulted.
The IFA will be required to pay this amount up to a maximum of £100,000. Interest of 2.5 per cent a year will also be added from November 2009 until the award is paid.
In the second case, the client, identified as Mr W in the provisional decision, invested £15,000 into the Keydata secure income bond issue three, again issued by SLS.
Mr W inherited £100,000 from his late mother’s estate, and the £15,000 Keydata investment was recommended as part of a wider portfolio.
Mr W referred the case to the FOS as he had understood the investment was guaranteed.
Boorman says in his decision that he is not convinced the Keydata recommendation was suitable, even as part of a wider and cautious portfolio.
However he says overall the IFA gave thoughtful and considered advice, which shows “this is not a case where the adviser had little or no regard for the interests of his client”.
Boorman therefore upheld the complaint, but did not make any award against the adviser.
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Readers' comments (5)
Since when has what the courts would do been part of the FOS unfathomable compensation machine's workings?
Overall the IFA gave thoughtful and considered advice, which shows “this is not a case where the adviser had little or no regard for the interests of his client”.......But the complaint was upheld?????? Why was that then, tell us the real story please....Was it a lack of caveats in the suitability letter or what?
The problem I have with this is that the loss is attributable to the misappropriation of funds, NOT the poor advice,
Thus, if FOS complies with the ruling in Needler that windfalls resulting from poor advice should not be considered then it also follows that it a misappropriation of funds resulting from poor advice should not be considered.
So these are SLS Keydata cases. What happens then when we get to the stage where it is a Lifemark case and it is agreed the IFA gave thoughtful and considered advice, which shows “this is not a case where the adviser had little or no regard for the interests of his client”.......
Will the FOS then find in against the IFA and force them to pay, despite the fact the loss was as a result of the collapse of Keydata AFTER the HMRC issue resulted in the identification of the theft at SLS?
The only people who had a chance to spot the theft were NOT IFAs, but the FSA, Luxembourg regulator and PWC Luxembourg who were the auditors for Lifemark and probably for SLS too.
These cases should NOT be decided by the FOS, the reason for the loss should be identified by a Test case in a COURT of LAW.
Even the same adjudicator at the FOS appears unable to give consitent decisions and follow the precedents he's setting himself!
This has become a sort of pass the parcel farce. Blame appears to be heaved onto anyone who is in no position to fight back. Those firms who flogged Keydata bonds to everyone ought to be the target and not someone who did all that they could to satisfy themselves that the product was sound.