A financial advice group must pay £150,000 for arranging a pension transfer so a client could invest in an offshore development by Harlequin Property.
Sussex Independent Financial Advisers Limited appealed a provisional decision by the Financial Ombudsman Service from March over claims it gave “unsuitable advice” to transfer a client’s personal pension into a self-invested personal pension (Sipp).
The IFA had claimed that the client was not entitled to compensation because he had worked in the financial industry, had already agreed to buy Harlequin using a personal pension and knew the Harlequin sales agent because they had previously worked together.
The Sussex firm also claimed the client had form for making ill-advised pension transfers, having previously transferred benefits from a final salary pension scheme into a personal pension, despite being advised this was a bad idea.
However, the ombudsman maintained its previous ruling, stating that a closer look at the client's background showed he was clearly not an experienced investor and had “no experience” of investing in higher risk investments.
The ombudsman said that Sussex IFA should have clarified the risks associated with investing in Harlequin when the firm learnt why the client was seeking to restructure his pension arrangements, even though the IFA was only involved in a transaction to arrange the Sipp.
In his ruling, Roy Milne, the ombudsman overseeing the case, said: “In my view, if Sussex IFA was not allowed, or prepared, to advise on Harlequin, it should not have given any advice at all. The rules require an adviser to give suitable advice to their client.
“Harlequin was an overseas property development. The way the investment worked was unusual. The returns an investor could make depended on the development being successful and rental income from particular hotel rooms. In my view, there were multiple risks associated with the investment.”
The ombudsman ruled that the client should be put back to the position he would have been in, prior to investing with Harlequin, but said that he is limited to awarding a maximum of £150,000 in compensation.
Mr Milne made an additional recommendation that interest by added to the compensation amount at a rate of eight per cent a year from the date of the FOS decision, until the amount is paid, although this recommendation is not binding.
Sussex IFA did not respond to a request for comment on the matter, when contacted by FTAdviser.
