Heres one for all you IFAs out there to comment on: Couple lose life savings

bigfreddiel

In the ST Money section today Ali Hussain reports on David and Sheila Solomon who took the advice of Paul Herd of MFS Partnership to invest £350k

You need to read the full article in the Sunday Time, in a nutshell they were advised to invest in unregulated Isle of Man based investment even tho' the Solomons asked for low risk investments, their advisor steered them towards this high risk option.

The end result was they lost the lot, bar £3k.

The FOS ruled that MFS Partnership owes the £500k, but MFS cannot afford to pay, and in the ombudsman can only award a maximum of £150k per individual.

One might say the customer, the Solomons did not understand the advice.

But the advisor told them to ignore the warning they received direct from investment company. In fact when Mr Solomon said he was relying on the advisor for his professional expertise, His advisor was i a postion to to assess all of Mr Solomon's circumstances and objectives and provide suitable advice....."

Even tho' the investments bombed, the advisor still kept taking his advisor fee!

So how does one handle this situation?

I think this is whey many people avoid FA/IFAs.

Cheers
fj

Gadfium

What has this to with the Savings & Investment thread?

bigfreddiel wrote: »

I think this is whey many people avoid FA/IFAs.

Nope- it's just you grinding your axe. Again.

One bad apple in the barrel does not mean that the all apples are bad. Only a fool would suggest that.

bowlhead99

bigfreddiel wrote: »

In the ST Money section today Ali Hussain reports on David and Sheila Solomon who took the advice of Paul Herd of MFS Partnership to invest £350k

Based on the actual article, they took the advice of Paul Herd, the then employee of the Financial Ltd network of advisers.

The SIPP trustee warned Financial as the advisory firm about the investment and its high risk nature as an unregulated collective investment scheme. In turn, Financial wrote to the couple on multiple occasions, and warned them that it was not actually suitable for cautious investors, and offered numerous opportunities to get out of it.

However, Herd wrote his own letters to them, saying that his employers were going to be writing to warn them off the investment and they should ignore it because his employers misunderstood the risk, and they should trust him personally and not his professional network, and avoid exit penalties by staying with it.

Despite the fact that their investment in the venture was £280k and not their original £350k - as a result of him having first lost them £70k in commercial property funds during the credit crunch - for some reason they decided to trust his poor advice again and ignore all the warnings they were sent. Despite one of the couple having been an insurance underwriter for a living, and presumably understanding what risk is, they decided to go ahead with all their retirement money in a single unregulated collective investment scheme, based on the lies from the adviser.

The end result was they lost the lot, bar £3k.

Actually, they didn't lose the whole £350k - they recovered some £90k from their previous losses on the commercial property funds when Financial Ltd paid them out.

However, when Herd left his old employer to become a partner at MFS, the couple followed him, along with the servicing for their unsuitable investment. And unfortunately MFS doesn't have the same deep pockets as Financial, so they can only afford to offer £30k of what the FOS recommends right now, without risking going out of business, and their insurers won't cover it.

Even tho' the investments bombed, the advisor still kept taking his advisor fee!

Advisory fees shouldn't really just stop if investments decline in value, because investments decline in value all the time and if you still need advice you should pay for it.

The issue is that the advice was wrong due to this "bad apple" lying to his clients and telling them that despite his poor track record with their previous investments, they should trust him personally and ignore the advice of his employer (who warned the couple that the investment was likely not suitable for their cautious stance).

So how does one handle this situation?

Complain to FOS, as they have done, and take what you can over time. Sell your story to newspapers or other media to recoup some losses.

And in future don't invest all your money in unregulated products, don't ignore advice and warnings that you might be invested well in excess of your risk profile, and don't put all your eggs in one basket if you feel that there is some risk that you might at some point need recourse to a compensation scheme with a lower limit than the value of your investment. Advice is just advice and is not an order you must follow.

MoneySavingUser

bowlhead99 wrote: »

However, Herd wrote his own letters to them, saying that his employers were going to be writing to warn them off the investment and they should ignore it because his employers misunderstood the risk, and they should trust him personally and not his professional network, and avoid exit penalties by staying with it.

All I have to say is :shocked::shocked::shocked::shocked::shocked: :exclamati:exclamati:exclamati

BananaRepublic

Gadfium wrote: »

What has this to with the Savings & Investment thread?

What have savings and investments got do with the Savings & Investment thread? :rotfl:

Gadfium wrote: »

Nope- it's just you grinding your axe. Again.

Please clarify.

Gadfium wrote: »

One bad apple in the barrel does not mean that the all apples are bad. Only a fool would suggest that.

Certainly one bad apple tells you nothing about the rest. However, this raises some important questions. Firstly, what happened to Herd? Has he been banned from practicing? Secondly, if not why not? Thirdly, how come he seems to have a history of bad advice? One might assume that this is not the only client he messed about. What about his other clients?

ermine

in a nutshell they were advised to invest in unregulated Isle of Man based investment even tho' the Solomons asked for low risk investments, their advisor steered them towards this high risk option.

So these dimwits for reasns known only to themselves ignored shitloads of warnings, and presumably the advice of their own mothers from an early age to not put all their eggs in one basket, and did just that.

Presumably they were not of sound mind or Paul Herd knows something about them they're not letting on.

You can't help people who won't listen to warnings. It's like the people who ignore big red flashing lights at a railways crossing and act all surprised when a train comes along.

This is not a warning against IFAs. It's a warning against wilful stupidity.

BananaRepublic

I checked the article, and Herd is still practicing. That suggests something deeply wrong with the IFA system in this specific case. It does raise the question of why he has not been banned from practicing since he willfully gave unsuitable advice, and should have known better.

ermine wrote: »

So these dimwits for reasns known only to themselves ignored shitloads of warnings, and presumably the advice of their own mothers from an early age to not put all their eggs in one basket, and did just that.

Presumably they were not of sound mind or Paul Herd knows something about them they're not letting on.

You can't help people who won't listen to warnings. It's like the people who ignore big red flashing lights at a railways crossing and act all surprised when a train comes along.

This is not a warning against IFAs. It's a warning against wilful stupidity.

Surely the whole purpose of an IFA is to provide suitable financial advice for clients who either have no financial knowledge, or do not want to concern themselves with investing decisions. In this case Herd wrote to them assuring them that the warning letters were incorrect. In other words, the victims paid an IFA for his advice, and took it, assuming that he was competent and acting in their best interests. Presumably the victims were reassured that he was a qualified IFA and hence an 'expert'.

grey_gym_sock

BananaRepublic wrote: »

I checked the article, and Herd is still practicing. That suggests something deeply wrong with the IFA system in this specific case. It does raise the question of why he has not been banned from practicing since he willfully gave unsuitable advice, and should have known better.

that certainly raises a legitimate question: what do IFAs have to do to get banned? doctors can be "struck off", for reasons including gross incompetence and serious breaches of trust. is there an equivalent for IFAs?

Surely the whole purpose of an IFA is to provide suitable financial advice for clients who either have no financial knowledge, or do not want to concern themselves with investing decisions. In this case Herd wrote to them assuring them that the warning letters were incorrect. In other words, the victims paid an IFA for his advice, and took it, assuming that he was competent and acting in their best interests. Presumably the victims were reassured that he was a qualified IFA and hence an 'expert'.

they had 2 conflicting sources of advice, from this one advisor, and from his employer. and they chose to ignore 1 of them, and trust a single individual, despite his employer disagreeing with him, and despite the huge amounts at stake for them. that showed extremely poor judgement. it's a long way from a situation in which the 'experts' all tell you the same thing, but they turn out to be wrong.

Rich2808

You wonder how such stupid people ever managed to raise £350k in savings.

Never put all your eggs in one basket.

Pincher

In the movie 300, the Ephors denied King Leonidas his request, using the Carneia as the excuse, but secretly taking a backhander from the Persian agent; and still charged Leonidas a lefty fee.

It's so true, history repeats itself, all the time.

If only all the evil people are ugly and puss ridden, so you can tell straightaway.

BananaRepublic

grey_gym_sock wrote: »

that certainly raises a legitimate question: what do IFAs have to do to get banned? doctors can be "struck off", for reasons including gross incompetence and serious breaches of trust. is there an equivalent for IFAs?

Sounds like we both want an answer to that question. One would assume this kind of situation is rare, given that we do not hear about it much, if at all.

grey_gym_sock wrote: »

they had 2 conflicting sources of advice, from this one advisor, and from his employer. and they chose to ignore 1 of them, and trust a single individual, despite his employer disagreeing with him, and despite the huge amounts at stake for them. that showed extremely poor judgement. it's a long way from a situation in which the 'experts' all tell you the same thing, but they turn out to be wrong.

They may well have shown poor judgement, but as I indicated earlier, many clients of an IFA are not investment savvy, and may even have poor judgement. Isn't that the reason for consulting an IFA? And isn't the point of the regulatory authorities to ensure that this sort of case does not happen, or prevent it from recurring?