The Financial Ombudsman Service (FOS) has ordered a Rugby-based advice firm to compensate a client who invested a £13,700 pension pot in unregulated biofuel scheme Sustainable AgroEnergy.
Sustainable AgroEnergy invested in jatropha oil, a form of biofuel, in Cambodian plantations. It was promoted by a company called the Sustainable Growth Group.
The scheme fell apart in February 2012 when the Serious Fraud Office obtained a freezing order against the company. By this point it had already attracted £23 million from investors.
In December 2014, three men associated with the company were found guilty of fraud and sentenced to prison. Among those convicted was former adviser Stuart Stone, who earned £3.1 million from selling the investment to clients with 65% commission.
The unnamed client, who is called Mr G in a FOS decision, brought a complaint against Rugby-based DeMontfort Wealth Management in relation to his investment in the scheme.
According to the FOS decision Mr G came across Sustainable AgroEnergy on an unregulated website in October 2009. He decided he wanted to invest his £13,670 pension pot in the scheme.
He used the website to reserve an investment, but as the unnamed firm behind the website was not authorised to set up a Sipp it referred Mr G to DeMontfort.
DeMontfort told Mr G it would only offer ‘focussed advice’ to recommend a Sipp which would hold the investment. He signed an agreement stating he understood this was the case.
However, he also signed a ‘terms of engagement’ document which stated he wanted a ‘full review’ as he was concerned about his investment. DeMontfort told the FOS this document was given to him ‘in error’.
DeMontfort claimed the company could not be held liable for the decision to invest in Sustainable AgroEnergy because it clearly stated it was only offering advice on the suitability of the Sipp and not the investment within the wrapper.
Ombudsman Roy Milne said he did not agree with this argument because he did not think it was possible to advise on the suitability of the Sipp without looking at the investment it held.
‘I cannot see how DeMontfort could give suitable advice on the Sipp without considering the investments to be made in the Sipp,’ he said.
‘The rules required firms to act honestly, fairly and professionally in accordance with the best interest of its clients. In my view, DeMontfort couldn’t comply with that rule by relying on advice that had been given by a third party.’
He ordered the firm to pay compensation based on the difference between the actual value of the pension pot and its fair value, based on it being invested in a WMA income index.
Milne acknowledged it might be difficult to work out the actual value of the investment because the fund is now illiquid.
He also ordered DeMontfort to pay £300 for the distress and inconvenience caused to Mr G as a result of losing his entire pension.
The firm named in the decision, DeMontfort Wealth Management, is still listed as regulated on the Financial Conduct Authority (FCA) register.
Its website bears the name DeMontfort Financial Advisers, another regulated entity.
Filings on Companies House show it is a limited liability partnership with three members who are also directors of DeMontfort Wealth Management. The members are John Boss, Kevin Gerrard and Adrian Kemp.
According to the FCA register this firm is an appointed representative of another company called Aegis Financial Planning. This company was formed in March 2014 and lists Boss and Kemp as directors.
DeMontfort declined to comment.
DeMontfort is a member of Succession Advisory Services, which prepares firms to be bought by the national advice firm Succession Group.
Simon Chamberlain, Succession Group chief executive, said member firms were directly authorised and it was not responsible for compliance at individual firms.
‘Succession members are directly authorised. We have 80 firms that are members of Succession, which pay us for consultancy to prepare them for acquisition, so we have nothing to do with compliance,’ he said.
‘When we decide to buy a firm we will conduct through due diligence before completing any deal.’