High Court throws out IFA’s insistent client case against FOS

High Court backs FOS in unsuitable SIPP advice case

A financial advice firm that tried to challenge the Financial Ombudsman Service (FOS) in the High Court over a ruling on pension advice has had its case thrown out. Laura Miller reports

An application for permission to bring a case – which was denied on 22 October – was sparked by a FOS ruling against Kingswood Financial Advisers, an IFA based near Cardiff.

The FOS had ruled Kingswood gave unsuitable advice when it switched Mrs D from an existing personal pension into a self-invested personal pension (SIPP).

Crucial to the FOS decision was that the SIPP was more expensive than Mrs D’s previous pension – and that she then invested via her SIPP in a high risk unregulated investment scheme, Harlequin Property.

Harlequin is an overseas property investment scheme that has failed to build most of the promised properties or to pay the majority of investors a return, and has frozen access to their capital.

The FOS ordered Kingswood to return Mrs D to the financial position she would have been in if she had not invested her entire pension pot in Harlequin.


Insistent Client

Kingswood argued that Mrs D was what is known as an ‘insistent client’ – that she had already made up her mind to invest separately in Harlequin via another adviser and would have found an alternative pension adviser if Kingswood had not acted.

The legally binding agreement to buy into Harlequin Property had already been made before Kingswood gave Mrs D any advice, Kingswood said.

As an insistent client, the duties of care lay with Mrs D and the unconnected adviser who made the investment, it argued.

But the FOS ruling in March, which upheld an earlier decision, dismissed Kingswood’s argument that it only provided advice on the SIPP and did not give advice to invest in Harlequin Property.


FCA Rules

FCA conduct of business (COB) rule 9 would have required Kingswood to obtain information about Mrs D and provide suitable advice, and it is not possible to give suitable advice on the SIPP without considering the investments it would be used for, the FOS said in its final decision.

In the FOS’ view, Kingswood should have made it clear that the underlying investment, Harlequin, was not suitable for Mrs D.

If she chose to ignore that advice, then it should have treated her as an insistent client, it said.

“The transfer to the SIPP was more expensive. The investment in Harlequin Property exposed Mrs D’s pension funds to significant risk. I am satisfied that the advice to transfer the SIPP was unsuitable,” a FOS Ombudsman said in his March decision.

Gareth Fatchett, partner at law firm Regulatory Legal which acts on behalf of hundreds of Harlequin investors said of the High Court’s decision that, “our firm is aware Kingswood have significant exposure to Harlequin based claims”.

“This was a last gasp challenge to avoid paying.”

The FOS said in a statement that it “does not discuss ongoing investigations or cases that involve ongoing legal action”.

Kingswood declined to comment.