Can You Make a SIPPs Compensation Claim against Cumulus Investment Management?
Each of the 12 FOS complaints for mis-sold pensions shared numerous key points, including
- the clients were introduced originally by an unregulated introducer, typically the result of a cold call;
- Cumulus Investment Management to claim they were being advised on an ‘execution only’ basis;
- In all cases, the investment was considered to be too risky for the client;
- FOS raised serious concerns over the decision to invest in the Cumulus Ukrainian Property Fund, as two of the directors of the fund were also directors of the advice firm, which led to a severe conflict of interest.
A decision published by FOS in April concerning a complaint for mis-sold SIPP resulting in an award of £24,900, is a typical example of the claims against Cumulus Investment Management.
According to the FOS decision, the client (Mrs S) met with Mr H, the representative of the unregulated introducer. As Mr H was the person who first introduced Mrs S to the Cumulus Ukrainian Property Fund, the ombudsman believed it likely that Mr H gave advice. Mr H, however, was not regulated to do so.
So if the Introducer is unregulated, what then?
In the vast number of cases of SIPP Mis-selling, because an unregulated introducer is involved, they cannot be investigated by neither the FOS nor the FSCS.
The FOS therefore needed to look at whether the IFA, Cumulus Investment Management, had any responsibility for the advice received in relation to SIPP mis-selling.
Cumulus told FOS that it advised the client purely on an ‘execution only’ basis, meaning that they were not responsible for the client’s choices when transferring their pension into a SIPP. They claimed that they were not responsible for the advice given, and so could not be held accountable.
The same reasoning was used by Foreman Financial Services when attempting to defend themselves against complaints.
The ombudsman in this case, and many others, disagreed. He said that Cumulus Investment Management had a duty to advise on the suitability of the underlying asset (in this case the Cumulus Ukrainian Property Fund) as well as the transaction itself.
The ombudsmen went on to explain that the investment fund should not have been promoted to Mrs S in the first place, as she was not a ‘sophisticated investor’ – something which should be a pre-requisite when recommending a SIPP. Mrs S was neither earning more than £100,000 per year, nor had assets worth more than £200,000 at the time of investing. She could not afford the loss, so neither the SIPP itself nor the underlying asset were suitable.
The ombudsman also noted a ‘significant conflict of interest’ between the advice firm and the fund. He noted the fund’s prospectus sets out that it was established with 100 ordinary shares owned evenly between two individuals. Both of which were directors of Cumulus Investment Management, and one was actually listed as Mrs S’s adviser.
‘The fund prospectus explains how the charges and fees would be paid. Clearly, the directors stood to gain by increasing the value of the fund,’ the ombudsman said.
In a previous case, Cumulus claimed that its interests were in fact aligned between client and adviser. They said that since the two directors were also shareholders in the fund, they would gain more from the fund performing well.
‘That misses the point,’ the ombudsman said in his decision. ‘By paying that into the Cumulus fund the directors stood to gain because of her investment. I think that is a clear conflict of interest.’
What compensation was awarded?
The FOS ordered Cumulus Investment Management to pay compensation to Mrs S, and to take ownership of her SIPP and pay any charges associated with it if the SIPP itself could not be closed – this amounted to over £24,000.
As the firm is now in default with the FSCS, complaints will now fall under their remit to investigate.
If you have been a victim of SIPP mis-selling and have been advised to transfer your pension by Cumulus Investment Management, contact us today to see if you can make a claim on 0161 968 0768.