The Financial Ombudsman Service (FOS) has come under fire for its ‘worrying’ and ‘harsh’ ruling against Berkeley Burke over due diligence failings.
The FOS upheld a complaint against Sipp firm Berkeley Burke over due diligence failings on unregulated biofuel investment scheme Sustainable AgroEnergy in 2011.
The FOS ordered Berkeley Burke to pay the investor the difference between the value of his investment, £29,000, and the return of the FTSE WMA over the same period. The investor was also awarded £500 for distress and inconvenience.
However pension experts have hit out against the ruling, claiming it will now make Sipp firms review their business models and set precedence to future claims.
Neil MacGillivray (pictured), chairman of the Association of Member Directed Pension Schemes (Amps) and head of technical support at James Hay, said the FOS’s decision was harsh as Berkeley Burke did warn the investor that Sustainable AgroEnergy was a high risk investment.
‘Looking from the document released with the decision, it seems very harsh. It seems harsh, particularly since they actually warned the member that it was a high risk investment.
‘If you actually look at that, an individual gets a warning letter telling them it’s a high risk investment, they go ahead and do the investment, and then say: well I shouldn’t have been allowed to have gone into it. I think that is going to change a lot of business’s business models.’
John Moret, principal of consultancy MoretoSipps, also criticised the FOS’s decision and said it was ‘alarmingly’ inconsistent with a number of Pension Ombudsman rulings in the last few years.
One ruling was set in October 2012 when Sipp firm Hornbuckle Mitchell won a landmark £300,000 case over due diligence failings.
Investor Julian Holy claimed Hornbuckle failed to carry out proper due diligence checks on a collapsed property scheme recommended by IFA Bentley-Leek Financial Management (BLFM) and made through sister company Bentley-Leek Properties (BLP). The claim was rejected by the Pensions Ombudsman.
Moret said the FOS’s decision against Berkeley Burke 'flies in the face of previous cases' and there was little Berkeley Burke could have done without straying into advice themselves as the customer signed a number of disclaimers and was arguably an execution-only customer.
He added he was concerned it could create a precedent and lead to more claims.
He said: 'It is a worrying trend and there are lots more potential claims out there.'
A FOS spokesman said: 'When considering what is fair and reasonable in a complaint, the ombudsman takes into account relevant laws, regulations and good industry practice.
'The Financial Services Authority's thematic report of Sipp firms in 2009 provides examples of good industry practice so where appropriate we will also look at whether the provider followed this at the time.'