One couple lost their £350,000 nest egg due to bad advice — and the firm involved has yet to refund them

David and Sheila Solomon were looking forward to a comfortable retirement, having saved into pensions for more than two decades and paid a financial adviser to help them make the right decisions. Now, however, thanks to his advice, their £350,000 savings are worth just £3,000.

Their adviser — Paul Herd, a partner at MFS Partnership in Plymouth — invested almost all their money in a single, unregulated, “high-risk” fund in 2010, despite being told they were “cautious investors” who intended to retire just four years later.

MFS Partnership admits it owes the Solomons about £500,000, based on a calculation stipulated by the Financial Ombudsman Service (FOS), as this is what their fund would have been worth had they been properly advised. Yet six months after the damning verdict, they are yet to receive a penny.

The Solomons’ story raises questions about the difficulties of providing for the future and how anyone can know their life savings are in good hands.

This is not the only question hanging over Herd’s advice. In another FOS ruling, MFS Partnership advised an 82-year-old woman to invest £99,000 of her £125,000 savings in the same high-risk investment as the Solomons. She has subsequently died. MFS said Herd was also her adviser and she also had a “low attitude to risk”. The FOS found in her favour.

Herd, who has declined to comment despite repeated requests by Money, is still working for MFS and has a high rating on a website that ranks financial advisers.

David, 64, a retired insurance underwriter from Newquay, Cornwall, said: “We both worked hard and saved to provide us with a good living in retirement, only to have that taken from us. We are without a regular income, a situation we have coped with for more than two years. This cannot continue indefinitely.”

After being shown Money’s investigation, Justin Modray of the personal finance website Candid Money said: “The advice given is disgraceful on so many counts. The adviser recommended the clients invest most of their pensions into a very expensive, high-risk investment that was unregulated. I can’t see why any adviser would have recommended the fund.

“It’s especially worrying that an adviser who has clearly given appalling advice can still be so highly rated on review websites that many people will naively rely on to find an adviser.”

The Solomons’ story
Herd was recommended to the Solomons in 2007. At the time, he was an employee of Financial Ltd, a network of independent financial advisers. David’s pension pot was then worth £256,285 and Sheila’s £90,402.

By August 2010, David’s funds were down to £210,477 and Sheila’s to £71,043, a result of the money largely being put into commercial property, which proved a poor decision during the financial crisis.

The couple stuck with Herd, though, believing the loss was inevitable because of the wider financial crisis. In 2010, he recommended they transfer their money into a self-invested personal pension (Sipp) with LV. Although LV is the couple’s Sipp provider, all investment decisions are made by them with help from their adviser.

It was then that Herd recommended all of David’s fund and most of Sheila’s be invested in an unregulated Isle of Man-based investment called New Earth Solutions Recycling fund, which invests in recycling and waste management plants across Britain. In total, about £280,000 of the couple’s money was invested. A fifth of any investment would go into buying shares in the fund but 80% would be used as an “unsecured loan”.

LV warned Financial, Herd’s employer at the time, about the risk of the investment. Financial wrote to the Solomons on July 4, 2011, saying it “had some concerns over the advice provided based on the documentation we have seen”.

Yet Herd had already sent his own letter to the Solomons, championing the investment. On April 18, 2011, he wrote to them: “Financial Ltd have identified a number of offshore funds recommended by their IFAs, myself included, which they feel might be inappropriate due to their high-risk nature.” However, he said Financial had “not taken account of the low volatility of this fund”, as well as the “non-correlation to other investment classes and the fact that New Earth group are continually expanding”.

He concluded: “I am therefore of the opinion that this fund remains completely suitable for you and should be held for at least another 3-5 years.

“Financial Ltd may invite you to unwind your investment and you should be mindful that this may entail early surrender penalties. I suggest that in these circumstances you simply telephone or put in writing your desire to continue with the investment, that you understand the risk involved with the fund and are happy with my advice.” Herd became a partner at MFS Partnership in June 2012 and the Solomons moved with him.

Back to Earth
Shortly afterwards, the New Earth fund encountered financial difficulties. Investors have been banned from making withdrawals since November 2013. In June this year, the fund went into administration.

Despite the freeze on their funds, the Solomons were charged hefty adviser fees. In March this year alone, David was charged more than £1,500. Advice fees stopped being levied in July.

Deloitte, administrators of the New Earth fund, said: “There appears to be little prospect of any meaningful recovery from the fund’s investments.” The accountancy firm said there are 3,252 registered investors in the fund.

The ombudsman complaint
The Solomons complained to the FOS in September last year. The ombudsman found in their favour in March, describing the New Earth fund as “high-risk”.

It also noted: “Mrs S [Solomon] had been offered the opportunity to exit the investment on a number of occasions. However, Mrs S had provided copies of correspondence from the adviser [Herd] who had advised Mrs S to disregard letters from his previous firm and maintained that the investments were suitable.”

Similar conclusions were made in David’s case: “Mr S was relying on his adviser for his professional expertise. His adviser was in a position to assess all Mr S’s circumstances and objectives and provide suitable advice . . . This would include alerting Mr S that the fund in which he was predominantly invested was higher than the level of risk he was willing to accept.”

How much are they owed?
The ombudsman aims to place those who have been given unsuitable advice into the position they would have been had the correct advice been given. Based on the formula stipulated by the ombudsman, MFS calculates it owes Sheila £101,734 and David £395,443 — a total of £497,177.

The ombudsman is only able to award a maximum of £150,000 per individual but adds that if the amount owed based on its formula exceeds that figure, it “may recommend the business to pay the balance”.

The Solomons pursued a separate complaint against Herd with his previous employer, Financial, which was acquired by Tavistock Group in January 2015. This related to losses incurred in their commercial property investment in 2007-10.

Tavistock, which took on the assets and liabilities of Financial following its acquisition, paid the couple £89,567 as a full and final settlement for this in July this year.

What the adviser said
An independent financial adviser will typically have professional indemnity insurance to compensate customers but MFS Partnership’s policy does not cover “unregulated collective investment schemes” (UCIS) such as New Earth.

UCIS products were banned for sale to retail investors at the end of 2013. The ombudsman said Herd should have taken this into account when advising clients.

MFS Partnership has yet to pay a penny to the Solomons, though to date, in a letter from the law firm Jane Sanders Commercial Solutions on behalf of MFS, the couple have been offered £30,000, to be paid in instalments. The legal letter says that if the couple demand their full payment immediately it would make MFS Partnership insolvent. The letter, seen by Money, said: “If you exercise that right you will receive back mere pence in the pound.” However, MFS insists it has “every intention of paying” the couple the FOS award.

Marcus Connell, compliance officer at MFS Partnership, said: “We have every intention of paying the Solomons, and we have an agent who is corresponding with them to this effect.” He added: “Please remember that the IFA advises, the client makes the decision on whether to accept that advice. The Solomons chose to ignore Financial’s very strong warnings about their investment in this company.”

When pressed about Herd telling the Solomons to ignore the warnings of his previous employer, Connell said: “The Solomons didn’t have to take his advice”, adding that some of Herd’s other clients had not.

Can the ombudsman force a firm to pay?
No, but a failure to adhere to a decision is a breach of Financial Conduct Authority (FCA) rules. A firm that fails to comply could lose its licence to provide financial advice.

The FCA said: “All firms are required to adhere to our rules, which include honouring decisions made by the FOS. [Not doing so] is a failure to comply with our rules. ”

The ombudsman says firms should “try” to comply with rulings within four weeks. It has informed the FCA of MFS Partnership’s failure to comply with its March judgment. The FCA said it is investigating.


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What does the pension provider say?
LV, the couple’s Sipp provider, said it is up to individuals to decide where to invest. It said it contacted Herd about the risks of New Earth but the decision lay with the customers and their adviser.

Despite their loss, the couple continued to be charged by LV. After being contacted by The Sunday Times, LV said it would not press David, whose fund is worth nothing, for outstanding charges of £2,122.66 “until the New Earth situation has been finalised”.

LV said: “We are extremely sympathetic to Mr and Mrs Solomon’s situation. Unfortunately, as the Sipp provider, we are not able to advise customers of the suitability of their investment plan.

“As the fund they were investing [in] carried certain risks, we contacted their financial adviser Mr Herd to ensure he was aware of these and was confident the investment was appropriate.

“It’s rare for an investment to have no value. When this does happen we stop all related charges. If there are other investments in the plan they will continue to be charged.” Sheila has £3,198 left in her LV Sipp.

What does the review website say?
Herd remains an independent financial adviser on the FCA register. He has a rating of 4.6 out of 5 on the Vouched For website. This is emblazoned on Herd’s website.

Vouched For said: “The ratings of each financial adviser listed on Vouched For are determined by the reviews of genuine clients. We never edit or remove negative reviews and encourage any clients that have had a bad experience with an adviser to leave a review on the site.”