Advisers face ruin over Propertybourse advice
Original article here
Two advice firms are struggling to pay compensation linked to complaints about Propertybourse investments, amid disputes between advisers and the fund promoter over who was at fault.
Investors complained to the Financial Ombudsman Service they were mis-sold the schemes, and the advice firms look unlikely to be able to meet Ombudsman-ordered redress costs.
If they fail, the bill is passed to the wider financial advice sector via Financial Services Compensation Scheme levies.
Propertybourse promoted unregulated collective investment schemes investing in commercial and residential properties such as leisure parks and shopping centres, in the UK and overseas.
It entered administration in November 2013 following an order issued in the High Court, with the administrator putting investor losses at around £20m, a figure Propertybourse disputes.
One of these firms is King’s Lynn-based Activate Financial Management, which has three upheld Fos complaints against it.
In August the Fos ordered maximum redress of £150,000 plus any interest, after Activate advised a client to invest £200,000 in the Mission London Residential Investment and German Capital Cities funds.
Two similar complaints against the firm were upheld by Fos at the end of November. One client was advised to invest £350,000 of her pension fund in the Mission property scheme.
Activate claimed in its defence that Propertybourse produced misleading documentation, promoted the funds as low risk and that mis-management had increased their riskiness, claims dismissed by Propertybourse and which the Fos said “didn’t remove Activate’s responsibility to assess the risks themselves”.
Activate’s evidence to Fos stressed in all these cases its advice was given at a time before the Financial Services Authorities thematic review into Ucis in July 2010.
Stephen Dockerty, principal at Activate, said he is currently “battling” his professional indemnity insurers to get the claims settled.
“If I can’t pay then I’ll have to look at some kind of voluntary arrangement. I’m trying to keep my business going, as I’ve got 80 clients and millions under advice.
“We reported these funds to the authorities, but they’ve done nothing to go after the managers, so it comes down to IFAs; we’re just cannon fodder.”
Another case upheld by the Fos this year involved Financial Aims Limited, which advised a client in 2010 to invest nearly £70,000 in the Opus Propertybourse Performance fund.
Financial Aims’ PI insurers have refused to cover the claim and the firm is unable to meet the cost itself, so the Fos said it would pass it to the FSCS.
But the FSCS is not currently considering claims against Financial Aims, so the Fos ordered the firm to cover the clients’ investment losses.
An FSCS spokesman said it is “investigating claims against IFAs for negligent advice”.
It is yet to formally put any involved firm in default, which would allow claims to be paid.
In the summer of 2014, around 100 financial advisers who recommended Propertybourse funds raised £12,500 for an investigation into the accounts of the business in both Guernsey and the UK, in a bid to find recoverable assets.
In March last yearan interim report circulated to the group from Propertybourse’s appointed administrators, BM Advisory, attributed the funds’ demise almost entirely to poor management.
Robin Christie, founder of Propertybourse and chief investment officer of Mission XP, disputed the appointment of BM Advisory and denied its claims.
He said the 2008 financial crisis caused funds to struggle for liquidity after banks withdrew capital from the market. The funds stabilised, but were hit again by the re-emergence of the euro crisis in 2011, he said.
Mr Christie claimed Mission London Residential Investment fund - set up in 2010 and also an unregulated fund managed using a similar approach to the Propertybourse schemes – last month paid an interim distribution of 125 per cent of capital invested, with other distributions planned for 2016.
Responding to the Fos decisions, Mr Christie blamed Activate for “flawed processes”, including placing 75 per cent of a client’s pension into two unregulated property funds. “The ombudsman dismissed [Activate’s] claims as conjecture and concluded that the funds’ offering documents were clear, setting out the risks for both IFAs and investors alike.”
Malcolm Fillmore, joint administrator at administrators BM Advisory, confirmed he is continuing to investigate Propertybourse.
Mr Christie accused Activate and Mr Fillmore of an “orchestrated media campaign” based on misleading information.