FOS and the Adams v Carey decision – where are we as the Court of Appeal hearing starts?
Today marks the start of the appeal in Adams v Carey. At the start of the Court of Appeal hearing we look at how FOS has treated the High Court decision in Adams v Carey from published FOS decisions.
The High Court decision in Adams v Carey, handed down in May 2020, marked the first court decision on the obligations of SIPP providers. Carey successfully defended the claim before the High Court. The High Court broadly found that Carey had not acted in breach of its obligation to act honestly, fairly and professionally in accordance with COBS 2.1.1R of the FCA Handbook as it had followed the terms of its contractual arrangements with the customer, Mr Adams – in effect finding that the FCA Handbook rule COBS 2.1.1 had to be seen in the context of the retainer. In particular, Carey had acted as an execution only provider and discharged its obligations in accordance with that retainer. Readers can find our detailed blog on the High Court judgment here.
Since the High Court decision there have been a number of FOS decisions referring to the High Court decision Adams v Carey. These have all been cases involving complaints against financial advisers rather than SIPP providers (this is despite the fact that FOS has, to our knowledge, not stayed FOS complaints pending the outcome of the appeal in Adams v Carey). It is worthwhile looking at what FOS is saying about the Adams v Carey High Court decision.
As a starting point, when FOS is reaching a decision within its jurisdictional remit and in doing so considering what is fair and reasonable in all the circumstances, FOS is required under DISP 3.6.4R to take in to account:
Relevant law and regulations, regulators rules, guidance and standards and codes of practice; and
What FOS considers to have been good industry practice at the relevant time.
If FOS departs from relevant law, guidance and practice it should set out why it has not applied relevant law, guidance and practice (see R (Heather Moor & Edgecomb) v FOS (2008)).
What has FOS said about Adams v Carey?
As already noted, published FOS decisions quoting Adams v Carey have not involved SIPP providers and have instead involved financial advisers in the area of pension advice. In each case FOS has distinguished the findings in Adams v Carey. We have seen FOS comment on Adams v Carey in the following areas:
- Complaints involving defined benefit pension transfers, where the adviser's role was to advise on the defined benefit pension transfer and not the subsequent investments.
There are a couple of decisions involving defined benefit transfer advice, where the adviser sought to argue that their retainer was restricted to advising on the suitability of the pension transfer and not the subsequent investments within a SIPP. The adviser had advised on the suitability of the pension transfer as a different firm did not have relevant permissions to advise on final salary pension transfers. The transferred pension funds were subsequently invested in a carbon credits investment. Customers had also received an incentive payment as part of the transfer.
FOS summarised the Adams v Carey decisions in the following terms: "… the claimant had argued that the underlying investment was manifestly unsuitable and the SIPP provider had a duty to advise on the underlying investment. The claim was dismissed. The court held that the SIPP provider didn't owe a duty to advise on the underlying investments and there was no obligation to refuse the claimant's instructions to transfer…"
FOS distinguished Adams v Carey to the facts of the complaints, on the basis that (1) it was a case about SIPP provider obligations and not financial advisers and (2) the issue in Adams v Carey was the extent if any of a SIPP provider's obligations in an execution only transaction and here the adviser was giving advice on the transfer and not an execution only service.
- Complaints involving advice on opening a SIPP where it was said the retainer did not extend to advising on the underlying SIPP investment
The adviser argued that it had recommended a SIPP but not an underlying investment in Harlequin. The adviser submitted that the customer must have known the adviser was not providing advice as advice as offered to the customer was refused.
The adviser argued that Adams v Carey provided that "… COBS 2.1.1 could not be construed as imposing an obligation to advise which would not only be (on the facts of that case) unlawful but which the parties had specifically agreed in their contract not to impose..." and "… the key fact… was the agreement into which the parties had entered and that the Court held that COBS did not impose an obligation to advise which the parties had not agreed to… the same reasoning should be applied to [the adviser's] duties under PRIN. In the circumstances, [the adviser's] information about the risks of transferring and investing were sufficient to comply with PRIN".
The FOS found that there was no merit in the adviser's argument that the contact with the customer was one where the customer agreed not to take any financial advice, with the decision referring to FOS finding that there was no evidence that such a contract had been agreed. Given that advice was being provided FOS did not consider the findings in Adams v Carey were a relevant consideration in the case.
The FOS also found that the Adams v Carey decision did not change the weight FOS should give to the FCA Handbook Principles in deciding the case, noting that Adams v Carey did not consider the application of the Principles and that the judgment in Adams v Carey "… says nothing about the application of the FCA's Principles to the ombudsman's consideration of a complaint and does not consider the duties of an IFA in this situation".
In a separate case addressing the same issue (an investment via a SIPP in Harlequin), the adviser again referred to Adams v Carey and asserted that the judgment found contractual terms between the parties had to be taken in to account and referred to the finding in the judgment that COBS 2.1.1R could not be construed as imposing an obligation on Carey as SIPP provider to advise. The adviser argued that similar principles should apply to the complaint against it as it made clear in its suitability report that it would only advise on the SIPP and not the underlying investment. As a consequence, the adviser argued, COBS 2.1.1R did not impose a duty to advise on the underlying investment as it fell outside of the retainer/contract.
FOS distinguished Adams v Carey and said "… I think the circumstances in this complaint are significantly different. [The adviser] did not act on an execution only basis. They were giving advice on the SIPP, so the regulatory obligations of COBS 9 did already apply… part of the suitability assessment of the SIPP would have included the suitability of the underlying investment. COBS 2.1.2R sets out clearly that a firm must not seek to exclude or restrict any duty or liability it may have to the client under the regulatory system. So [the adviser] couldn't limit their obligation in COBS 9 to assess suitability of the underlying investment by taking instructions to only consider the SIPP wrapper in isolation."
See the decision here.
Engagement on an execution only basis
FOS considered a transfer from a personal pension to a SIPP with a subsequent investment in an overseas land venture. The customer engaged with the adviser on an execution only basis.
The FOS decision commented that the judgment in Adams v Carey "… prompted [the ombudsman] to reconsider aspects of the complaint because it covered in part the interplay between execution only sales and the regulatory requirement to act in a customer's best interests. I thought it was therefore a possibility that the outcome of the complaint could be affected given the judgment's findings in this area (although the law is only one of a number of factors I'm required to take into account when reaching decisions). With this in mind I thought it prudent to revisit the issue of whether the transaction should be treated as execution only or advised…".
Having found in the provisional decision that the transaction should be treated on an execution only basis, the final decision found that it was an advised basis referring to the adviser having set out various options (staying in their personal pension and investing in a portfolio of managed funds) to find that advice had been provided. As a result, the engagement was not on an execution only basis and so Adams v Carey did not apply.
See the decision here.
What can we take from these FOS decisions?
Of the published FOS decisions referring to Adams v Carey, none have adopted the reasoning in Adams v Carey to reject a complaint. Instead FOS appears to have restricted the decision in a couple of ways:
The decision applies to execution only providers and not other limitations on the scope of a party's retainer. The fact that an adviser's retainer said it was not advising on subsequent investments after a pension transfer / switch did not matter in FOS' eyes. This appears to us a strained restriction on the Adams v Carey decision as it stands.
The decision applies to SIPP providers and not advisers. We also consider that this is a strained interpretation given that COBS 2.1.1R applies to all regulated FCA entities.
The decision did not consider the Principles and FOS' jurisdiction requires it to take in to account the Principles. It is right that the Adams v Carey decision did not consider the Principles in any great detail; that is because a breach of the FCA Handbook Principles is not actionable in law – a party cannot found a claim against a regulated entity for breach of the Principles, a party must instead point to a breach of the FCA Handbook Rules. It is also fair that FOS' jurisdiction requires it to consider the application of the Principles. This puts FOS on arguably firmer ground.
All in all, FOS' approach to Adams v Carey so far has been consistent albeit we consider both disappointing and sometimes arguably missing the point. We wait to see whether its approach changes with a Court of Appeal precedent.