A former member of adviser consolidator the Succession group has been told to compensate a client after advising them to switch their pension into the Succession Sipp.
Mr C, who complained about now deauthorised Mellor Associates Limited, had been told to switch his £48,000 personal pension to the advice group’s self-invested personal pension (Sipp), the Succession Plan, in December 2012.
But he later complained the Sipp was too complex for his needs and his new pension arrangement too costly.
Mellor was not part of Succession at the time the advice was given but he became a founding member of advice arm the Succession Group a mere few weeks after.
Mr C’s Sipp was invested 32 per cent in structured investments, 4 per cent in cash and 32 per cent each with two discretionary fund managers (DFM).
The Financial Ombudsman Service (Fos) said the Sipp had a yearly charge of 0.35 per cent, in addition to DFM charges ranged between 0.3 per cent and 0.42 per cent and additional fund charges of up to 1.5 per cent.
Mellor also levied a reduced advice charge of 1 per cent, alongside a 1 per cent ongoing service fee for monitoring the funds.
In contrast, Mr C’s original pension plan had, at the time, an annual management charge of 1 per cent, the Fos said.
It said the information Mr C had been given about charges was not overly clear and that Mr C’s objectives could have likely been achieved through his existing pension plans, so there had been no compelling reason to transfer into the Sipp.
Mellor’s adviser had told Mr C that while there was nothing fundamentally wrong with his plan, his objectives could no longer be met through it.
This was because the fund options in the plan could not be monitored on a monthly basis and it did not allow investments in structured products.
The adviser told him structured products were suitable because they incorporated an element of capital protection, which met his needs.
At a risk assessment of six out of seven, Mellor said Mr C was one of their “higher risk clients”.
But the ombudsman stated: “Taking into account the modest size of Mr C’s pension savings, I would expect there to be compelling reasons given for why the Sipp was the most suitable investment vehicle.
“Mr C invested around 32 per cent (£15,000) of his pension fund in structured investments.
“Looking at the amount involved, I agree with Mr C this was an overly complicated structure given his investment objectives. I’m not persuaded that Mr C’s pension objectives couldn’t have been achieved through his simpler and lower cost personal pension.”
He added: “I also think the charges could’ve been made clearer. I don’t think Mr C would’ve decided to take out the Sipp if they had been, because I don’t think he would’ve thought the costs were worth it to him.”
The ombudsman ordered Mellor to put Mr C as closely back to the position he would probably now be in if he had been given suitable advice.
To set out what compensation is “fair and reasonable” the Fos ordered the Sipp to be benchmarked against the FTSE UK Private Investor Balanced Index and any positive difference in value paid out plus 8 per cent interest.
The ombudsman said the index, which is a mix of diversified indices representing different asset classes, mainly UK and International equities, would be a fair measure for “someone who was prepared to take risk to get a higher return”.
Succession consolidates advice firms by taking them on as 'members' and requiring them to adjust to its systems and processes before buying the ones it considers 'best' on a 50 per cent cash and 50 per cent equity basis.
Mellor Associates traded as Inspired Financial Life Planning from 2011 and as Succession Group from January 2013 before being deauthorised in July 2015, according to the FCA’s register of regulated firms.
Succession’s advice arm, Succession Group, formed in January 2014, according to Succession’s website. Mellow was one of five founding firms. Since then funds under management have risen to £5.6bn at a compound annual growth rate of 34 per cent.
A spokesperson for Succession said: "We always respect the right of a client to refer a complaint to the ombudsman and fully respect the ombudsman’s decision on this matter.
"The advice was given by Mellor Associates back in 2012 and since the Succession Group was founded in 2014 we have always striven to uphold the highest standards of client advice. We would consider this an unfortunate exception."
carmen.reichman@ft.com
