Financial Ombudsman Service  

Adviser ordered to compensate over 'non-advised' Sipp

Adviser ordered to compensate over 'non-advised' Sipp

Advice firm Grosvenor Financial Consultants has been ordered to pay compensation to a client for failing to advise him on the risks of an investment to be held in his self-invested personal pension.

The client, who the Financial Ombudsman Service called Mr H, first got in contact with Grosvenor Financial Consultants in 2009 to arrange for his pensions to be transferred to a Sipp to invest in an overseas property development run by Harlequin.

His pensions were worth about £60,000, which included final salary defined benefit benefits.

Mr H complained to Grosvenor Financial Consultants that it had failed to ensure that he fully understood the information given to him and the risks of the Sipp and the Harlequin investment.

The entirety of his pension was invested in an unregulated investment and it was claimed by representatives for Mr H that the advisers had not "carried out sufficient fact finding to establish whether the investment was suitable for Mr H or assessed his attitude to risk.

"It also did not explain he could lose all his investment," they alleged.

In response Grosvenor Financial Consultants stated that it had been instructed to set up the Sipp on an "execution only" basis, which meant that the client would not receive any advice, and Mr H had signed a letter to confirm this.

The firm said that due to the transaction being on an ‘execution only’ basis it was not required to carry out any fact finding or assessment of risk and the application form for the Sipp confirmed no advice had been given. 

It also told the Fos that it did not undertake any due diligence on the investment but clear warnings as to the investment were provided.

The Fos found that Grosvenor Financial Consultants was registered by the Sipp provider as the servicing IFA for the Sipp.

The ombudsman decided that the transaction could not be described as "execution only". 

This was because Mr H did not approach the advisers with a Sipp in mind as he had only been told that he may be able to use his pensions to invest in Harlequin and had then been contacted by Grosvenor Financial Consultants who had proposed the Sipp and carried out the transfers.

The Fos stated: "Given [Mr H’s] limited savings, experience and pension benefits, it was very unlikely to be appropriate for him to transfer his pension benefits to a Sipp. And Grosvenor Financial Consultants was aware that the intention was then to invest in an unregulated high risk investment. 

"Grosvenor Financial Consultants would or should have been aware of these factors and should have advised him against the transfer."

Although the Fos appreciated that the adviser said it was not giving advice, it did recommend the Sipp to be used and in its decision the ombudsman said it was not persuaded this was or should be deemed to be an execution only transaction.

The Fos stated: "Given that it was giving advice as to the Sipp it should then have taken into account the investment of which it was clearly aware.