In a complaint decision, the UK’s Financial Ombudsman Service (FOS) found that Cumulus Investment Management helped their client, Mr V, transfer his pension into a self-invested personal pension (Sipp) for the sole purpose of getting him to invest in a high-risk unregulated property fund.
Mr V approached Cumulus in 2013, looking for advice on how to consolidate his pension plans.
Mr V signed an application form for a Sipp with a third party in September 2013, with Cumulus listed as his adviser.
On 1 February 2014, almost £44,000 was invested in the Bermuda-listed Cumulus Ukrainian property fund which invested in a limited number of properties in Eastern Europe.
The fund was suspended on 30 June 2015. Subsequently, Cumulus Investment Management was told by the Financial Conduct Authority to “immediately cease all regulated activities”.
Mr V complained to the Ombudsman that he was unhappy with the advice he had received. However, Cumulus argued that it was an “execution-only sale” and that no advice had been given to transfer the client’s personal pension into a Sipp and then invest in the Eastern European property fund.
The Ombudsman has now upheld Mr V’s complaint that the firm provided “unsuitable advice” despite there being “limited evidence about whether Cumulus gave advice”.
“Cumulus was arranging the Sipp for Mr V. And it knew the investment was to be made into the Cumulus Property fund. Although it was acting as a financial adviser, it was trying not to provide advice.
“Mr V was unaware of the Cumulus fund until he contacted Cumulus. The fund must have been promoted to him by Cumulus; or the Sipp provider,” said the complaints ruling.
The Ombudsman added that the firm failed to act in Mr V’s best interests, should never have sold him a Sipp or invested in an unregulated fund.
“In my view, the failure to act in Mr V’s interests has caused the loss,” said Ombudsman Roy Milne.
He has now ordered Cumulus to compensate the client by either buying the defunct investments from him or should calculate the loss and pay compensation.
Conflicts of interest
In its ruling, the FOS also found a clear conflicts of interest as, according to the Bermuda Stock Exchange, Cumulus Investment Management Limited is listed as the manager of the Cumulus Ukrainian Property Fund.
“The prospectus sets out that the fund was established with 100 ordinary shares that would be owned evenly between two individuals,” it said, referring to the firm’s directors Andrew Lucas and John Cefyn Stephens.
“Clearly, the directors stood to gain by increasing the value of the fund. So it’s clear Cumulus Investment Management Limited and its directors had a financial interest in the fund and therefore directly benefit from a capital inflow,” added the FOS decision.
According to Companies House, Lucas resigned as the director of Cumulus Investment Management in February.
