Thai hotels, olive trees and ‘conflicts of interest’ – Portafina’s complaints laid bare

Hannah Godfrey investigates...

In the early part of this decade, advice firm Portafina, then known as Portal Financial, recommended a number of clients place the majority of their pensions savings into a handful of unregulated collective investment schemes (UCIS).

In the early part of this decade, advice firm Portafina, then known as Portal Financial, recommended a number of clients place the majority of their pensions savings into a handful of unregulated collective investment schemes (UCIS).

Since 2016, the firm has received more than 100 complaints from clients, with many being taken to the Financial Ombudsman Service (FOS). Strikingly, nine in every 10 concluded cases have been upheld in favour of clients – a much higher proportion than the average for self-invested personal pension (SIPP) based gripes.

What is more, in a few of the cases, the ombudsman made references to an apparent “conflict of interest” between Portafina and the collection of unregulated investments the advice firm repeatedly recommended clients invest in.

The ombudsman began publicly publishing its decisions online from 1 April 2013 and, from that point to the end of 2014, Portafina saw fewer than 10 complaints sent to the FOS each calendar year. In 2015, the firm received 17 complaints, with fewer than 10 of those cases coming to a formal conclusion. From 2016 onwards, however, cases against the firm began to mount – as did the uphold rate.

In 2016, the firm saw 25 complaints against it sent to the ombudsman while 20 were concluded – with 95% of those upheld in favour of the client. The following year Portafina received 43 complaints and, in this period, 25 were concluded, 84% of which were upheld. In 2018, 62 complaints were brought against the firm while 38 were concluded, with 92% of those upheld in favour of the firm’s clients.

A full table of Professional Adviser‘s findings – RP’s sister publication – can be seen below:

 

In a bid to provide a comparison – if admittedly a somewhat unscientific one – Professional Adviser sought data on a few other adviser firms that had faced ombudsman complaints.

Financial advice network Openwork, which has nearly 4,000 advisers, faced 122 complaints in 2018, for example, with 72 closed at an uphold rate of 29%.

Indeed, of the various firms PA looked into, only Kingswood Financial Advisors, which has come under fire for facilitating Harlequin investments, has seen a higher annual uphold rate – 100% in both 2016 and 2018.

According to annual complaints data from the FOS, 52% of SIPP cases that went to the ombudsman in the 2017/18 financial year were upheld. Meanwhile, 28% of complaints on personal pensions were upheld in the same period.

Of the 43 Portafina FOS decisions in the life and pensions section that have been published online, 31 specifically related to advice given by the firm to transfer a portion of clients’ pension savings into a handful of UCIS vehicles.

These unregulated schemes included Cool Blue Fractional fund (also known as the Cool Blue Samui fund), EOS Solar Energy, Hypa Asia fund, Hypa Raithwaite fund, Kudos Asia Investment Fund, Olive Tree Koroni fund and Venture Oil International.

Seven more of the 43 published decisions related to advice to invest pensions into unregulated investments, but did not specifically mention the name of the unregulated fund(s) involved.

Portafina’s UCIS investments
Raithwaite Hypa:
In one FOS case, the investment was described as a “specialist investment in five star hotel developments in Yorkshire”. It was designed to yield 8% per annum. The decision also said the fund claimed it had secured a discount to the market value, which meant it should be worth 25% more than the original investment once the hotel opened in August 2011.
Hypa Asia: This fund allowed investors to put money into hotel developments in selected locations in Thailand.
Koroni:
Professional Adviser struggled to find information about this fund. According to claims in one FOS case it “loaned money against assessed financial claims”. Judging by a 2009 Powerpoint presentation on the fund found online (as at 11 Jully 2019), it appeared to invest in olive trees.
Kudos Asia: Again,
PA struggled to find anything specific about the fund, although it appeared to be based offshore.

The complaints

The complaints made by Portafina clients were largely similar in nature. They generally centred around the advice given to transfer a pension to a SIPP and then to use the money to invest in unregulated funds that have since become illiquid. More often than not, the complainants were in their late 50s or early 60s and were preparing for retirement.

Indeed, the story was similar in the vast majority of cases. And, as expressed by the ombudsman’s online publishings, the FOS upheld the vast majority of complaints in favour of Portafina’s clients.

The ombudsman often concluded Portafina clients had been unsuitably advised and that the associated UCISs did not match the complainants’ attitude to risk, that the investor was too inexperienced for such an investment and that they did not have the capacity for loss if all went wrong.

Portafina, meanwhile, often defended its practice by arguing the advice was suitable according to the information it had for the investor at the time.

Portafina frequently told the ombudsman it had carried out rigorous due diligence on the UCIS funds, that the risk assessments were accurate and that the clients had other provisions aside from the SIPP. On several occasions, the firm also suggested some of the aforementioned UCISs should not be considered high-risk.

In one published ombudsman case, Portafina expressed concern that “half of the ombudsmen who have given a final decision to Portafina do not have a background in pensions, let alone UCIS investments”. In response, the ombudsman said: “In my view, it is not necessary to be a master of wine to know when a bottle is corked.”

It is a story PA readers may have been accustomed to seeing in recent years. The Financial Services Compensation Scheme (FSCS), for example, has often bemoaned how much it costs to reimburse advised clients who have been transferred into a SIPP and recommended to invest in unregulated or higher-risk funds.

In a statement about its annual levy in April, the lifeboat fund said: “As in 2018/19, the main driver of the compensation costs falling on the FSCS this year will continue to be pension claims. The bulk of these claims will continue to arise from bad advice to transfer retirement savings out of occupational schemes and into SIPPs – usually with a view to investment in risky and illiquid assets.”

Different circumstances

While the story was largely the same for each Portafina complainant, the individual clients naturally varied in attitude to risk and personal wealth.

As an example, a Ms E – as the FOS referred to her – appeared to be one of wealthier clients to complain about Portafina’s advice. In 2011, when she took advice to transfer her pension funds into a SIPP, she was aged 41 with two dependent children.

As for her other assets, Ms E had a home valued at around £650,000 with an outstanding mortgage of £238,000. She also had a second property valued at £65,000, and two further investment properties valued at £322,000, with an interest-only mortgage outstanding of £93,750.

Ms E was the managing director of her own company receiving a salary of around £5,000 a year and monthly dividends of between £3,000 and £4,000. She also received £650 a month rental income and a further £300 per week holiday rental for nine months of the year. Finally, Ms E had outstanding credit card liabilities of £10,500. The FOS noted Ms E disagreed with some of those figures and that she argued she did not have the investment properties, nor the second home.

Portafina recommended Ms E transfer her three personal pension plans, worth almost £40,000 collectively, into a SIPP. The firm recommended she invest 47.5% of the portfolio into Hypa Raithwaite, 12.5% into Hypa Asia, 17.5% into Venture Oil International, 12.5% into EOS Solar Energy and 10% in cash. Portafina had assessed her as having a moderately adventurous attitude to risk.

At the other end of the wealth scale were the likes of Mr C. In 2010, when he was advised by Portafina to transfer his personal pension plan to a SIPP and invest in UCIS, he was 59 and married with children. He earned about £24,000 per year working as an engineering technician, but his expenditure exceeded his income.

As a result, he had accrued debts, including £2,400 for a car loan, £1,200 for council tax and £1,000 in personal loans and his total outstanding liabilities was said to be £6,200. He told Portafina he wanted to take tax-free cash from his pension to pay off his debts, fund dental work and help finance his children’s education.

Aside from his pension, Mr C had no other assets other than an endowment plan worth £12,000, which he jointly held with his wife. Mr C’s pension was made up of deferred benefits in the SCA UK Pension Plan. It had a cash equivalent transfer value of £36,881. Portafina said Mr C had a balanced attitude to risk.

 Not too dissimilarly to Ms E, Portafina recommended he put 50% of his pension savings into the Hypa Raithwaite fund, 30% into Hypa Asia, 10% into Olive Tree Koroni fund and 10% in cash.

It was recommended both investors place 90% of their pension savings into UCISs, leaving just 10% in cash – and, in Mr C’s case, an additional lump sum in cash – despite both being in different financial positions with different attitudes to risk.

Indeed, of the 31 decisions upheld that named the aforementioned handful of UCIS vehicles, the majority of complainants were recommended to put 80% or more of their pension fund or savings into the unregulated investments, with some being recommended to put as much as 95% of their pensions into the unregulated funds.

More specifically, Portafina appeared often to recommend the largest share of the pension – usually around 45% to 50% – be put into Hypa Raithwaite. It would then recommend clients invest a slightly lesser proportion into a mixture of the other UCISs, and suggest the remainder of their portfolio be left in cash.

When assessing the complaints of Portafina clients, on several occasions the ombudsman made reference to the Financial Conduct Authority’s view that: “UCISs are generally regarded as being characterised by a high degree of volatility, illiquidity or both — and therefore are usually regarded as speculative investments. This means that in practice they are rarely regarded as suitable for more than a small share of an investor’s portfolio.”

It is unclear why Portafina recommended such a high percentage of a client’s pension be put into UCISs. In defence, Portafina repeatedly argued it had carried out “rigorous due diligence” on the investment.

Specifically, in its defence of the advice it offered Mr C, it said: “Mr C was made aware of all the risks associated with his recommended pension plan, and he wished to proceed on this basis. The advice was given in the best interest of the client underpinned by extensive due diligence.”

For a Mr L, who invested 95% of his only pension plan into UCISs at the recommendation of Portafina, the firm argued that, among other things, he had little experience of investing in the stockmarket and so investing in UCISs reduced his exposure to investment volatility.

Cool Blue Fractional (also known as Cool Blue Samui): This fund invested in ‘off-plan’ villas and hotels on the Thai island of Koh Samui. The buildings were intended to be resold at higher prices once building was completed. According to FOS documents, the developments were financed by local banks and the fund was designed to run over a three-year period and return between 50% and 100% on the original investment.
Venture Oil International: This fund claimed to pre-purchase crude oil at an agreed set price and then sold it back to the open market. In one case published by the ombudsman, Portafina said it was selling for more than $100 per barrel. It said the price of the crude oil was likely to increase.
EOS Solar Energy: This fund invested in solar power developments in Cyprus. The fund had contracted to sell electricity at a fixed price over a 25-year period to the Cypriot government. It was designed to yield 8% per annum for three years and 10% per annum thereafter.

‘Conflicts of interest’

In three published FOS cases, the ombudsman made reference to “conflicts of interest” at Portafina. In one decision, the FOS observed: “Some of the partners of Portal Financial may also have business interests in some of the funds recommended.”

In response, Portafina said: “Due to the fact that if the fund grows it is mutually beneficial, we believe that there is no conflict of interest.” The ombudsman, however, did not agree, maintaining there was “an obvious conflict of interest”.

Discussing a different client’s case, the ombudsman said: “Portafina also set out that some of the partners of Portafina may have business interests in some of the funds invested in through her SIPP. But said [sic] they wouldn’t receive any commission through the investments; and set out that they based all their recommendations solely on their client’s circumstances after conducting the regulator’s required ‘know your client’ review. Portafina also said they ensured an appropriate level of due diligence was carried out. So because it was mutually beneficial if a fund grew, they believed there was no conflict of interest.”

In a third case, the ombudsman said: “Portafina also said they’d conducted a full due diligence exercise to ensure the schemes recommended were suitable for Mr B. It also said that although the directors of Portafina might have interests in these funds, they were assured there was no conflict.”

PA looked into the various funds Portafina often recommended clients. While there was little information to be found of the UCIS funds, Portafina’s Kent address was found in the indexed data on a Google search for one of the UCISs.

Portafina’s address appeared to be the same as one used on a number of websites for Hypa Raithwaite – the fund that numerous Portafina clients saw nearly half of their pension funds invested in.

Google has indexed some data – that is, old information that has not been completely removed – found on The Gazette, which is an official journal of record (pictured below). However, the page has since been updated – it now lists Hypa Raithwaite’s address in Newbury.

After further digging, PA found the full address for Hypa Raithwaite – Affinity House, Beaufort Court, Sir Thomas Longley Road, Rochester, Kent – on directory website 192.com. The address matched that of Portafina’s, and even listed the adviser firm as a “neighbour”.

That said, Companies House, the official registrar of businesses in the UK, has never had Hypa Raithwaite’s address listed as the same as Portafina’s.

Portafina’s response

Professional Adviser has made numerous attempts to secure an interview with Portafina to discuss the issues raised in this article. However, we have been unable to establish a conversation.

As a result, PA sent a list of questions to the firm on 9 July, two days before publication. We asked about the so-called “business interests” that supposedly link senior people at Portafina with the aforementioned UCIS. We also asked why a firm would recommend individuals invest a high percentage of their pension savings into unregulated investments.

Here is Portfina’s response in its entirety. Managing director Jamie Smith-Thompson said: “We haven’t recommended this type of product for many years and the affected funds represent less than 4% of funds under management.

“All of the funds are still live and we are committed to supporting affected clients whilst this proportion of their investment remains illiquid.”