UK IFA ordered to pay client over Arch cru pension transfer

UK-based IFA firm Tenet must compensate a client for advising him to transfer his pension into the doomed high-risk Arch cru fund, which lost investors up to £361m ($462m, €408m).

Portfolio Adviser


According to a ruling by the Financial Ombudsman Service (Fos), advisers at the firm persuaded a client to transfer his pension in 2006 from Standard Life to Transact.

Investments in his transact pension consisted of the ill-fated Arch cru portfolio fund, which went into liquidation in 2011.

Unregulated funds

Tenet adviser its client to invest in two UK-based open-ended investment companies (OEICs) – the CF Arch Cru Investment Funds and CF Arch Cru Diversified Funds – which were run by investment manager, Arch Financial Products.

In 2009, the-then Financial Services Authority (FSA) suspended the two funds after, citing problems with liquidity.

By 21 December 2010 the fund reported that £361m had been wiped off its total net asset value, with investors left facing huge losses.

In January last year, two senior partners of Arch Financial Products were collectively fined £850,000 and banned from the industry for life.

In October 2014, Guernsey’s Channel Island Stock Exchange (CISX), where the funds were listed, was fined £190,000 over the possible market manipulation of the Arch Cru funds.

Risk suitability

Tenet defended its advice, explaining that at the time the funds’ risk profiles, which it deemed as medium, matched the customer’s approach to investment risk.

However, the Fos disputed the claim, adding Tenet should have concluded that both funds were high risk.

“They were specialised, non-mainstream investments, and assets included a substantial proportion of unlisted debt and private equity.

“Tenetconnect described the combination of investments in the two funds as being medium risk and Mr R invested on the basis that it was. Rather than being a medium risk investment I’m satisfied it was high risk.

“I’m not persuaded the advice to invest in the Arch Cru funds was suitable. I’m satisfied Tenetconnect should compensate Mr R for the loss on the whole of his investment,” said Ombudsman Caroline Stirling.

It has now ordered the IFA to calculate and pay the client the difference between the fair value and the actual value of the investment, as well as £250 for the upset caused.



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