• subs-bellGet the latest news! Subscribe to the ifa bulletin

FOS slams Chambers for poor advice

The Financial Ombudsman Service has castigated Chambers Investment Planners for inadequate advice and risk profiling, ordering it to pay damages to a former client.

According to a FOS determination handed down on 12 June – obtained by ifa – Chambers Investment Planners (CIP) advisers perpetrated multiple breaches of the Corporations Act 2001 in the advice it provided to a former client.

The client was issued a statement of advice in 2006 which recommended borrowing to invest in the Macquarie Geared Equities Investment (GEI) and Willmott Forests Project (Willmott) – bringing the number of clients advised to invest in these schemes to a minimum of three, despite very different financial circumstances.

When, in 2010, Willmott Forests Pty Ltd went into liquidation following the collapse of the scheme, the client lodged a complaint with FOS seeking damages.

Specifically, the FOS panel said its “main concern with the advice relates to the nature of the investments recommended and the use of 100 per cent loans for the investments using a double gearing strategy”.

The determination stated that in the panel’s view “both the GEI and Willmott investments were high risk” and that the risk was “not clearly explained to the applicants”.

It also found that the portfolio recommended by the CIP adviser was “poorly diversified, which increased the risks that the applicants would be taking and was inappropriate for their circumstances”.

In addition, the panel voiced doubts about “the extent to which the adviser did understand the products that he was recommending”, but said this was not a core focus of the FOS determination.

The inappropriate advice and risk assessment was found to be in breach of the Corporations Act and as such, FOS found in favour of the former client, directing CIP to pay a total of roughly $200,000 within 28 days of the determination.

However, in July CIP went into voluntary administration and ifa understands the former client has not received the awarded damages.

Perth-based lawyer David Huggins – who is representing a number of former CIP clients – has suggested the move into administration may be a device by which the financial planning firm can shield against FOS claims and paying awarded damages.

CIP managing director George Takla strongly refutes the suggestion, indicating he has sought legal advice about Mr Huggins’s comments.

“Chambers strongly objects to Mr Huggins providing his personal opinion about the standard of advice provided to clients,” Mr Takla told ifa.