‘Adviser lost £117,000 needed for mum’s care’

Many investors don’t realise that if their financial adviser goes bust the losses can be irrecoverable. Sam Brodbeck reports

If you are given disastrous financial advice you would expect some recourse to compensation. But, as thousands of people have discovered, there are gaping holes in current forms of investor protection. When a financial firm goes into “default” and is unable to pay redress itself, compensation can be paid by the Financial Services Compensation Scheme (FSCS). But payments are capped at £50,000, meaning that losses greater than this ceiling are often irrecoverable.

This is what happened to 89-yearold Sheila Jeffryes. Mrs Jeffryes, who suffers from dementia, went into a care home in 2011. Her family home was sold and the plan was to invest the proceeds in “low-risk” assets. It was also made clear that access to the cash might be required at any time.

Yet Mrs Jeffryes’ adviser, who she had worked with for 15 years, put £117,000 of her money into five-year unregulated bonds issued by London Property Holdings, an developer registered in the Marshall Islands in the middle of the Pacific Ocean.

Unregulated schemes such as this are supposed to be sold only to “sophisticated investors” and are not subject to the same controls and oversight as mainstream investments.

To make matters worse, the bonds were due to mature in September this year but, following a refinancing, London Property Holdings now says bondholders must stay invested until 2021 or risk losing their money.

An update sent to investors admitted that the company’s Welsh housing developments were three years behind schedule, meaning that there will not be “sufficient liquidity” to return bondholders’ capital this year.

With her mother’s care fees approaching £65,000 a year, Mrs Jeffryes’ daughter, Emma Scowan, made a formal complaint to the adviser.

But finding the right person to complain to was not straightforward.

The original firm, Drew Lacey Financial Planning, was no longer trading and the business had changed hands several times, first to a firm called Alchemy Wealth Management, then to Portland Financial Management, both of which also appear to have ceased trading, and then to Corvus Private Clients.

Corvus confirmed that while it “bought a book” of clients it did so without taking on the liability for the advice previously given by other firms. Effectively this meant that while Corvus was managing Mrs Jeffryes’ money, it took no responsibility for any earlier investments.

Mrs Scowan, who works in marketing and has power of attorney over her mother’s affairs, said the experience suggested that “you still can’t trust the financial services industry”.

She said: “I’m not an unintelligent person, and I understand finance. My mother had the same adviser for 15 years, so there was trust and they’d done a reasonably good job. What shocked me was how you can have paperwork saying my mother is invested in low-risk assets when in fact that simply wasn’t true.

“How do these things happen in today’s age? Now that savers are able to take lump sums from their pension, I think it’s very worrying.”

Because the firm responsible for recommending the property investments no longer existed, the family had to turn to the FSCS. Earlier this month the compensation scheme calculated the loss at just over £117,000 and awarded £50,000, the maximum it can pay.

The family’s new financial adviser, Kerry Nelson of Nexus, helped Mrs Scowen secure the compensation. She said if the original adviser had still been in business they would have pursued the firm for the entire loss.

She added that with more than 6,000 regulated funds now available to ordinary investors there was “more than enough choice” for advisers to pick from without having to resort to unregulated schemes.

Ms Nelson said: “Why is this still allowed to happen? It baffles me. A lot of the time advisers themselves won’t know how these things work.

“There are countless examples of unsuitable investments being recommended. I cannot fathom why they are still allowed – allowing people to invest in these kinds of things creates more problems than it gives benefits.”

The FSCS paid out £77m in compensation for poor investment advice in 2015-16, its latest annual report shows. Over the same period £84m was paid out to compensate people who were given the wrong advice on pensions.

The compensation scheme is funded by financial services firms, which pay an annual levy based on the size of their business. Advisers

Emma Scowen fought for compensation but found the advice firm had gone bust