A financial adviser has been told to compensate a client after recommending the transfer of a their savings into a self-invested personal pension.
A complaint submitted by Mr M has been upheld by the Financial Ombudsman Service, after he raised concerns about the advice received.
The firm, Independent Financial Advisory Ltd, had advised Mr M transfer his £37,000 Legal & General stakeholder pension, which was invested in the Newton Higher Income fund and the L&G Index Linked Gilt fund, into a Sipp.
Once the transfer took place, the Sipp was invested into the CF Milton Special Situations, Standard Life Global Absolute Returns Strategies and Troy Trojan Fund.
But ombudsman Keith Taylor upheld Mr M’s complaint, saying he did not need a Sipp.
“The suitability letter says that Mr M’s objective was to have flexibility in investment choice and a more actively managed investment structure,” the decision notice read. “But I think these aims could have been achieved within his existing stakeholder pension.
“I don’t think he is a sophisticated investor in the sense that he required access to unusual or esoteric investments that weren’t available within his existing stakeholder pension,” added Mt Taylor.
When the transfer was recommended in January 2012, the suitability letter said Mr M’s objective was to have flexibility in investment choice and a more actively managed investment structure.
It also recorded Mr M’s attitude to risk as “cautious”, or four on a scale from one to 10.
In September 2014, Mr M complained to the firm as he believed he was misadvised, but his complaint wasn’t upheld so he referred it to the Fos.
Mr Taylor also pointed out that the Sipp was more expensive than the stakeholder pension.
“The Sipp illustration suggests a reduction in yield of 2.35 per cent but the annual charges for the existing pension were less than 1 per cent,” he stated.
“Whilst it’s possible that the recommended funds may have performed better than the existing arrangements and offset this increase in cost - that could never be guaranteed - but the increase in charges was certain.
“Given Mr M’s recorded attitude to risk, I don’t think he should have been advised to take the risk that the Sipp investments would perform so much better so that they covered the additional cost and produced growth on top.”
The Fos told the firm to compare the performance of Mr M’s investment with two benchmarks and pay the difference between the fair value and the actual value of the investment - if the former is bigger than the latter.
Half the investment should be compared to the FTSE WMA Stock Market Income Total Return Index and the other half to the average rate from fixed rate bonds.
