An adviser must compensate for a pension transfer despite telling their client to “either choose the investments on his own or seek advice elsewhere."
The ombudsman ruled the adviser was required to know its customer and act in their best interests and it could not do this without considering the suitability of the investments within the new pension plan.
The complainant, referred to as Mr H, was first approached by an unregulated third party who referred him to Total Wealth Solutions Ltd.
In August 2012 the adviser at Total Wealth Solutions Ltd provided him with a report comparing the Green Retirement Plan with his existing pension arrangement.
The report stated it would provide advice on the potential transfer but added: “For the avoidance of any doubt the responsibility for assessing the ‘suitability’ of any investment within The Green Retirement Pension Plan rests with you and the trustees of the scheme.
“If you have any doubts about the investment options proposed, you should seek advice from a suitably authorised and qualified adviser. Total Wealth Solutions will not provide financial advice in this area.”
At the time of advice Mr H was 43 and married.
He was employed as a nurse and had net monthly earnings of £1,400.
He had a house worth £70,000 with an outstanding mortgage of £26,000.
It was recorded that Mr H wanted “to personally take control of your pension funds and how they were invested.”
Mr H agreed to transfer his pension provision to the Green Retirement Plan in the hope of enhancing his benefits on retirement.
He was recorded as having a balanced attitude to risk.
In the adviser’s report there were illustrations of the projected benefits at age 65 from the existing arrangement and from the new plan.
These indicated that at age 65 on all the assumed growth rates of 5 per cent, 7 per cent and 9 per cent the new plan produced lower projected funds.
The reduction in the projected fund was between 6 per cent and 9 per cent and the report stated the new plan would need to provide an additional growth of 1 per cent a year to match the benefits in the former plan.
It was noted that a stakeholder pension plan would be cheaper but that this was not what Mr H wanted.
A transfer value analysis report on the transfer value of £21,053.59 also showed that the new arrangement was more expensive than the old plan.
The transfer went ahead and the funds were transferred to the Green Retirement Plan where the cash was able to be invested in either the Para Sky plantation or in a corporate bond fund.
The decision where to invest the funds was left to Mr H and the advice business has stated that it did not provide advice on where the funds should be invested.
Mr H invested in the Ecoquest corporate bond fund, which provided a guaranteed 5 per cent return and repayment after a five-year term.
The current scheme trustee is trying to sort out the records and to pursue the former trustee for the records that they have.
The trustee has stated that the corporate bonds mainly mature in 2017 and it is hoped by the new trustees that at that point members’ interests will identified and then transferred to a new reputable pension provider.
TWS argued no redress should be awarded at the moment unless Mr H can prove he’s incurred a loss and he will have to pay his claims management company 25 per cent of the amount received.
If Mr H agreed to wait until the investment matures in 2017, TWS stated it was willing to pay him £200 as a gesture of goodwill and provide a free review and help him transfer to a new plan in 2017.
But Mr H didn’t accept this offer.
In a final decision, ombudsman Adrian Hudson said Mr H was entitled to use a claims management company and the complaint could not be put on hold until it was seen whether the Ecoquest bond would pay out or not.
The ombudsman said: “Where we decide unsuitable advice has been given, the redress we award is intended to put the customer back in the right position – at the time we consider the complaint.
“TWS can’t simply say that the customer had already decided what he wanted to do, so it simply carried out his wishes regardless of whether it was in Mr H’s best interests.
“TWS should have recognised that as a nurse Mr H was unlikely to have the relevant experience or knowledge to understand the risks of the transaction he was carrying out.
“To be able to advise in accordance with the rules, it (TWS) had to understand the risks associated with the proposed investment. Without this information, it could not say whether the transfer was suitable or not.
“As well as Mr H’s attitude to risk, the rules required TWS to consider Mr H’s financial situation. It also required TWS to be satisfied that he was able to bear the investment risks. It failed to do this.
“There’s no evidence that the transaction was carried on either an ‘insistent client’ or ‘execution-only’ basis.”
The ombudsman ordered TWS to put Mr H in the position he would now be in if he had received suitable advice.
To compensate Mr H fairly, TWS was told to determine the fair value of the investment in the GRP and then pay the difference between the fair value and the actual value.
TWS was also told to pay interest plus £200 for the worry and upset caused.
emma.hughes@ft.com
