Back in 2011 a client, referred to as Mr C, held two pension plans. One was a personal pension, uncrystallised and valued around £58,000 while the other was in a drawdown arrangement valued around £164,000.
He requested advice from advice firm Wealth Management about his options and whether to purchase an annuity.
Having already taken the tax free cash from the larger pension he was advised to take the tax free cash from the smaller plan and transfer both into a new drawdown arrangement and invest in a single cautious managed investment fund.
The initial adviser fee was 8 per cent and there was an ongoing annual fee at 1 per cent, which were disclosed in the illustration and on the application form.
The advice was to invest in a single fund, which when reviewing the case the Financial Ombudsman Service considered lacked diversity for a pension the size of Mr C’s.
The Fos adjudicator also found there was no evidence Mr C’s attitude to risk had been assessed in 2011, although after a conversation with him his view was that it was reasonable for him to have been considered a cautious investor.
Wealth Management replied that as the fees were disclosed and Mr C was aware of them, they were acceptable to him.
Therefore he would also have been fully aware of the impact of the charges and how they would reduce his pension on transfer.
The adviser stated Mr C’s age would give him a life expectancy such that he could remain invested for more than 20 years, which was sufficient time to recover the costs incurred in 2011.
Wealth Management did not agree that a like for like comparison between his then arrangement and the one being proposed was necessary as that was irrelevant to the advice being given and that the fund recommended had delivered.
While the recommended fund had performed well, the ombudsman stated there was no guarantee of that in 2011 and it was a matter of hindsight to use that performance now to justify the advice.
In a final decision, Ivor Graham, ombudsman, said: “It is a regulatory requirement to provide a suitability report when an adviser firm makes a personal recommendation to its client such as in Mr C’s case.
“Without a copy of that report it is difficult to understand and assess the reasons why the recommendation was made without the use of hindsight.
“In looking at what Wealth Management has said were its reasons for transferring Mr C’s pensions, I’m not persuaded that the advice was suitable.
“The initial adviser fee of 8 per cent and the ongoing 1 per cent annual adviser fee were in my opinion significant and would likely have had a negative impact on Mr C’s pension fund going forward.
“I consider that without a like for like comparison, with both the initial and ongoing adviser fees included, then Mr C would not be in a position to decide if the transfer was in his best interests.
“I consider it would have been prudent for a pension of Mr C’s size to have had more diversity of fund management rather than relying on a single fund manager.”
Wealth Management was told to compare the performance of Mr C's investment with that of the benchmark and if there is a loss pay that amount allowing for any available tax relief and/or costs plus interest.
The adviser also has to pay Mr C £200 for the trouble caused and the disruption to his retirement planning.
emma.hughes@ft.com
