The Financial Ombudsman Service has ruled Openwork was wrong to tell a client to switch Isa and bond provider, given the cost of the advice and the penalty for closing his existing bond.
A client, known as Mr M, complained Openwork gave him unsuitable investment advice and misled him about the charges which would apply.
Following a meeting with the firm, the adviser recommended Mr M transferred his existing bond and Isa to another provider.
Reviewing the case, ombudsman Elizabeth Dawes found Openwork set out its fees in a “client proposition” document and Mr M signed a separate “fee agreement” for the adviser’s “advice and implementation” charge of 3.25 per cent and the “wealth management” charge of 1.25 per cent.
Fees and charges, including the 3.25 per cent fee, were also set out in the new provider’s charges information sheet and in its adviser remuneration declaration, which Mr M signed.
So, while there was a lot of paperwork to read through, Ms Dawes said the charges were made clear – and the adviser fees were set out and agreed separately.
Also, the “client report” included reference to the exit penalty of £1,884 which was incurred on the offshore bond.
Ms Dawes said: “I accept Mr M relied on the adviser’s comment that the charges he would incur would be broadly the same.
“And, even though the fees were made clear in the paperwork sent to Mr M, it was Openwork’s responsibility to ensure its recommendation was suitable, taking into account the charges he would incur.”
Overall, Openwork calculated an annual saving from the switch of 0.41 per cent. This calculation took the bond penalty into account.
So there was a marginal benefit – equivalent of around £270 a year – in transferring to the new provider.
But Ms Dawes said this modest annual saving needed to be considered against the immediate lump sum costs – £1,884 for the exit penalty and £2,200 for the advice and implementation fee.
She said: “I don’t think the marginal annual saving was, or should have been, a driver in the recommendation to switch providers.
“There seems to have been minimal discussion about the performance of the existing investments, or the past and anticipated performance of the recommended investments. I don’t consider Openwork explained why it thought its recommendation would perform better than the existing funds.”
The ombudsman told Openwork to put the client back in the position he would be in now if he had not received the advice, plus £100 in compensation.
Openwork will have to repay the adviser’s fees (initial and ongoing) together with simple interest at 8 per cent a year, from the date the fees were paid to the date of the settlement.
The intermediary must also refund the early surrender charges applied to the offshore bond, together with simple interest at 8 per cent a year from the date the bond was surrendered to the date of settlement.