SIPPJul 7 2017

Sipp transfer into Saint Lucia property under fire

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Sipp transfer into Saint Lucia property under fire

Bright Financial Partnership has been told to compensate a client it recommended a Sipp transfer to who went on to plough her pension pot into property in Saint Lucia.

The client, referred to as Mrs R, complained about advice given by BFP in 2013 to transfer the proceeds of her personal pension plan to a self-invested personal pension and then invest in an overseas property development in Freedom Bay, Saint Lucia. 

The adviser’s fact find stated Mrs R was employed as a residential care worker earning £19,000 a year, she had joint savings of £800 and private property to the value of £110,000 (which appeared to be subject to a mortgage) and she aimed to retire at the age of 65.

She was 43 at the time she spoke to the adviser and had deferred group final salary pension scheme benefits – which she was advised to keep.  

I don’t think it’s possible to separate the Sipp transfer advice from the underlying investment.Lesley Stead

She had a paid up personal pension valued at £25,297.48 and a stakeholder pension plan that her employer was paying into. 

The adviser’s notes record Mrs R had been referred to BFP because she wanted a Sipp and to look at an “alternative investment strategy for a frozen pension …. she is unhappy with the returns she’s received over recent years … she wants to take control of this part of her pension planning in order to maximise the potential growth in the future.’ 

She asked the adviser that her funds be invested in fractional ownerships in Freedom Bay.

At this point the adviser stated advice would be limited to the request for a transfer into a Sipp and if that was suitable for her needs.

Despite this, Mrs R was still told that what she wanted to do had a higher risk because of the investment she’d selected - fractional ownership of a property abroad. 

The adviser explained it was an illiquid and unregulated product and because of this she might not be covered by the compensation scheme if anything went wrong with the investment.  

The adviser had researched the investment but told Mrs R she needed to carry out her own due diligence. 

The adviser said he had no qualifications in property development so couldn’t comment on the possible returns that might be achieved.  

When the Saint Lucia property went bust, Mrs R complained.

While BFP rejected the complaint the Financial Ombudsman Service ruled BFP could not simply say Mrs R had already decided what she wanted to do and it just carried out her wishes, regardless of whether that was in her best interests. 

BFP didn’t agree arguing it was aware that many independent advisers were simply setting up Sipps on an execution-only basis. 

In a final decision, ombudsman Lesley Stead said: “Freedom Bay wasn’t suitable for Mrs R. I don’t think it’s possible to separate the Sipp transfer advice from the underlying investment.

"I don’t think BFP could give Mrs R advice about transferring to a Sipp without also advising her about the investment it knew she intended to make – fractional ownerships in Freedom Bay. 

“BFP identified that the Freedom Bay investment was unregulated. And pointed out that, because of that, Mrs R might not have recourse to this service or Financial Services Compensation Scheme if something went wrong. Unregulated investments are only likely to be suitable for more experienced or sophisticated investors. That’s why the promotion of such products is and was at the time restricted. 

“There’s nothing to suggest Mrs R had any experience of investments like fractional ownerships abroad. I don’t think she understood the risks. And she didn’t have the capacity for loss for such a high risk investment.

"The suitability letter said that she had a ‘reasonable knowledge of pensions and investments’. But I don’t think simply because she had a ‘frozen’ personal pension and apparently some interest in following investment markets meant she’d have understood the particular investment and been able to evaluate for herself the risks. 

“I don’t think it was up to her to make her own enquiries or carry out her own due diligence on the investment.”

BFP was told it was responsible for the whole of the loss suffered by Mrs R and should also pay up £300 for the trouble and upset she has suffered. 

emma.hughes@ft.com