Advice firm Insight Financial Associates has been ordered to pay compensation to an insistent client for transferring her pension benefits to a self invested personal pension.
The Financial Ombudsman Service found the adviser should have properly protected the client from the investment, which was too high risk for her.
This was after it heard that the client had been told by Harlequin the suitability reports were 'standard practice' and were to be ignored.
The client, who Fos called Miss R, first got in contact with Insight in January 2011 to arrange for her occupational pension scheme to be transferred to a Sipp to invest in an overseas property development run by Harlequin.
In August 2010, Ms R was introduced to the concept of investing in Harlequin using her pension by her former mortgage adviser. She was then referred to a regulated business which the Fos called business B.
Business B was not regulated to give advice on or transfer the pension benefits due to the type of occupational scheme Ms R held. Due to this she was referred to Insight who transferred her £60,000 pension to a Sipp in May 2011.
Ms R had been a member of her workplace scheme from 1988 to 2002 which provided certain benefits such as a guarantee of minimum benefit at retirement and reevaluation of benefits before and after retirement.
These benefits arose because the scheme had been converted from a defined benefit to a defined contribution scheme.
In June 2016 Ms R complained to Insight that it had put her in a position where her pension funds had been lost.
The majority of Ms R’s pension was invested in Harlequin, an unregulated investment, and it was claimed by Ms R that "the advice to transfer was unsuitable because it failed to clearly explain the benefits she would be giving up by transferring out of her existing scheme".
Insight argued that no advice had been given to the client to invest in Harlequin and a letter signed by Ms R in January 2011 set out the adviser’s recommendation not to proceed with the transfer.
However, the Fos said that Insight should have declined to arrange the Sipp transfer regardless
When asked why she continued with the Sipp transfer despite the advisers warning against it, Ms R said: "When the process started [the Harlequin agent] referred my Sipp to [business B] and he advised that they would more often than not say ‘not to go ahead’, but that this was standard practice and they would produce a standard template letter for me to complete."
The Fos found that Insight had a duty to act in the client’s best interest and give suitable advice which it could not do without taking account of the investment which the Sipp was put in place to facilitate.
The Fos stated: "The only reason for the creation of the Sipp and the transfer was to enable the overseas property investment to take place."
The ombudsman also said that Ms R’s circumstances did not indicate that she was willing to lose all her money in the pension scheme or that she was suited to the risks the investment presented.
The Fos said: "[Ms] R’s investment experience was very limited and does not suggest that she was an experienced investor who could appreciate all the risks of what she was doing or would not be reliant on Insight to give her suitable advice or consider her best interests.
"I have not seen that Insight gave [Ms] R any material advice about the Harlequin investment itself... In particular that it was unregulated and therefore did not benefit from regulatory protections."
On this basis, the Fos ruled that the transfer and investment was "clearly unsuitable" and that Insight should have either declined to carry out the transaction or provided further guidance or advice on the overall arrangement of the transfer, Sipp and investment.
The Fos ordered Insight to compensate Ms R so that she would be as close to the position she would be in if she had not transferred her scheme.
The firm must also pay any future fees owed by Ms R to the Sipp for the next five years or pay this amount in an upfront costs and pay her £300 for the trouble and upset caused.
amy.austin@ft.com
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