Kingswood Financial Advisors has been told to pay up compensation to a client it helped transfer from a personal pension into a self-invested personal pension in order to invest in Harlequin Property.
A client called Mr D met with Kingswood Financial Advisors’ adviser in June 2010 and said he wanted to use the money held in his pension to make a commercial property investment in the Caribbean.
At the time of the advice Mr D was aged 42 and married, self-employed with a gross monthly income of about £2,700 and had a personal pension plan with a fund value just over £21,000.
The transfer value of his pension pot was around £1,400 less than this, he owned other property apart from his home and held £5,000 on deposit jointly with his wife.
His attitude to risk was recorded as willing to accept the risk of a small loss to his pension.
The adviser explained he wouldn’t give Mr D any advice on the suitability of investing in commercial property but he did say this type of investment was only available using a Sipp.
Once the Sipp was in place, Mr D invested in Harlequin Property – an unregulated property scheme which has since been valued at nil for by the Financial Services Compensation Scheme for the purposes of compensation.
Claims paid out by the FSCS have risen to £375m, according to its annual report, with an increasing amount of payouts related to self-invested personal pensions.
Kingswood argued Mr D had already received advice from another adviser about Harlequin and committed himself to buying the property by signing the relevant contracts.
Kingswood therefore argued it cannot be held responsible for the suitability of that investment.
The Financial Ombudsman Service ruled Kingswood had a duty to consider Mr D’s circumstances and give him suitable advice that considered both the suitability of the Sipp and the Harlequin investment.
In a final decision, ombudsman Doug Mansell said: “Kingswood was required to comply with the regulations. That includes knowing its client and giving suitable advice. It was also required to act in its client’s best interest. I don’t think Kingswood can avoid these obligations by limiting its role to only advising on the Sipp.
“The investment in Harlequin Property exposed Mr D’s pension funds to significant risk. It was an overseas property development. The way the investment was intended to work was not entirely clear. The rental income from a hotel room was to be paid to Mr D. But, the income depended on the success of the venture. I think this should have been clear to Kingswood when its adviser wrote to Mr D in June 2010.
“I am satisfied that the advice to transfer to the Sipp was unsuitable. The investment was too risky for Mr D. He was recorded as being prepared to take only a small loss of his money. I think that Kingswood should have advised Mr D against transferring to the Sipp; and also advised him not to invest in Harlequin.