IFA denies responsibility after affiliate cold call leads to unsuitable pension transfer

By Jon Yarker

The Financial Ombudsman Service (FOS) has ordered a corporate finance firm, Alexander David Securities, to pay compensation to a client over a £14,000 loss arising from a pension transfer.

The unnamed client, Mr I, had complained to the FOS after being contacted by St Pauls Marketing – a soon-to-be appointed representative of Alexander David Securities – and advised to transfer his pension into water bond investments.

Mr I, who had been cold called, was told by St Pauls Marketing he would be better off investing in water bonds. As such, he transferred approximately £14,900 to a self-invested personal pension (SIPP) in June 2015. Just over £14,000 of this was transferred to a discretionary fund manager and invested in Hydrology Debentures PLC.

However, Alexander David Securities CEO David Scott, when contacted by Professional Adviser, said the transaction occurred before St Pauls Marketing was an appointed representative of the firm.

The transfer took place in June 2015. St Pauls Marketing was an appointed representative of Alexander David Securities from October 2015 to August 2017.

Scott told Professional Adviser: “ADS [Alexander David Securities] took the precaution of getting St Pauls company records when they closed down. Mr I did invest in Hydrology Bonds, however, St Pauls was not ADS’s appointed rep at the date that Mr I bought Hydrology bonds.

“In the spirit of helpfulness, we assist Mr I with the route to making a claim Via City One, which is now in administration. If the claim is valid the FCA should honour the claim via their compensation scheme.”

City One Securities was another appointed representative of the firm, from 2012 to 2016. This business had the same CEO, John Newlands, as St Pauls Marketing. City One has since gone into liquidation.

Scott said he could not comment as to why, in his opinion, the FOS had “incorrectly ascribed” the matter to Alexander David Securities.

While St Pauls Marketing may not have been appointed representative of Alexander David Securities at the time of the transaction itself, there are ties between the companies.

According to companies house records, St Pauls Marketing only has one registered director: Robert Allen, who is not working in a role that warrants regulatory approval.

Allen and Scott have worked together before at Bridge Hall Stockbrokers and Sky Capital, according to the FCA Register. Scott himself served as a director of St Pauls Marketing between October 2015 and August 2017, starting his tenure four months after the unsuitable transaction in question.

In its ruling, the FOS noted it had repeatedly tried to contact both St Pauls Marketing and Alexander David Securities but received no response.

When asked by Professional Adviser why his firm did not liaise with the FOS to clarify the situation during its investigation, Scott did not respond.

The investigator at the ombudsman concluded that, even if St Pauls Marketing had not made a recommendation to transfer, it should be obliged to assess the appropriateness of the investment in accordance to COBS 10.2.1 and to act in Mr I’s best interests.

The water bond business collapsed in 2017 and Mr I consequently lost all of his investment. The ensuing investigation by the FOS found the transaction was high risk and Mr I, who had no other savings, was not in a position to take the risks it presented. Hydrology PLC had only been established in 2013 and had a limited track record.

Based on all the evidence, the ombudsman concluded that “it’s more likely than not that advice was given.” In the ruling, it instructed Alexander David Securities to pay Mr I compensation.

Mr I is not the only person who has lost money on this investment. Get Claims Advice, a website specialising in mis-sold financial claims management, has a special portal designated to investments in Hydrology.

The FOS ruling set out what it believed was fair compensation to put Mr I as “close as possible to the position he would probably now be in but for St Pauls Marketing’s failures”.

It said Alexander David Securities should pay compensation based on an 8% return against a benchmark set out as 50% invested in the FTSE UK Private Investors Income Total Return Index and 50% average rate from fixed-rate bonds.

An additional £250 should be paid for the distress caused and five years’ worth of SIPP charges reimbursed.

The FCA declined to comment. The FOS was unavailable for comment.