Kellands Northern Ireland has been told to compensate a client who it transferred her free standing additional voluntary contribution (FSAVC) plan to a personal pension plan (PPP).
The client, referred to as Mrs W, was given advice about her pensions and investments when she was 55 and not working. The complainant was receiving some pension and rental income and had an existing FSAVC with a retirement age of 60.
Mrs W was advised by Kellands to transfer her FSAVC to a personal pension plan, paying in the maximum of £300 a month, with the intention to increase her pension provision.
The new plan was recommended on the basis it had 250 funds available and the adviser intended to build a portfolio for Mr W. Her existing plan only had 14 funds available.
The charges associated with the new plan included a financial adviser charge of 50 per cent of the new contributions. A charge of 4 per cent was to be taken from the transferred funds. Trail commission was 0.5 per cent a year and the average fund charge was 1.92 per cent a year.
Charges in the first year of 56.14 per cent would reduce to 2.42 per cent a year from year two.
A Fos adjudicators thought the advice to start a new plan was unsuitable, due to the upfront and higher new product costs, suggesting that increasing the contributions to the existing plan was more suitable.
In response to the adjudicator, Kellands asked the ombudsman to bear in mind the guidelines the Financial Conduct Authority laid out for advice to clients who are in with-profits investments.
Ombudsman Roy Milne said the free standing additional voluntary contribution was invested in a mixed fund, suitable for a balanced investor, not a with-profits fund, so comments made by Kellands were not relevant to the complaint.
Mr Milne said as the advice given to Mrs W meant that she paid much higher costs to the new PPP, it was difficult to see how this advice could be suitable.
“She wasn’t working at the time and the contributions were always likely to be relatively small,” he pointed out. “This was a small fund and the growth rate required to overcome the effect of charges would be quite high.
“In my view, the advice to start a new PPP was unsuitable. I think that the existing plan could have been continued. I agree with the adjudicator that a comparison of the existing FSAVC should be made with the new PPP.”
Kellands was told to pay the client £7,342 - the difference between the fund value of the existing pension, if it had remained invested in the same fund, and the transfer value of the Sipp on the same date.
