The Financial Services Compensation Scheme is currently investigating claims received against an advice firm, which had been taken to the ombudsman over pension transfer advice.
St Martin's Partners entered into liquidation on June 14 and appointed financial recovery firm Carter Clark as liquidators.
The FSCS told FTAdviser that it has completed a review of the firm and is currently investigating claims received, although it was unable to say how many claims had been received.
If the FSCS finds a claim valid under its own rules then it will declare the firm in default.
The Financial Ombudsman Service (Fos) has also received claims against St Martin's Partners and ordered compensation for the client in at least one instance.
It is unknown whether St Martin's Partners will have the funds to pay this compensation or whether the FSCS will pay out instead.
In the 26-page Fos decision, a client claimed he had suffered a loss following the transfer of his existing personal pensions to a newly opened Sipp and that St Martin’s Partners were responsible.
The client, who the Fos called Mr R, was introduced to St Martin’s Partners by an adviser who recommended that he should open a Sipp and consolidate his other personal pension plans so that he could then invest his money.
In September 2012, St Martin’s Partners sent Mr G’s Sipp application to the provider and a Sipp with Guardian Sipp (now GPC, in administration) was set up.
A total of £47,739 was transferred from Mr G’s pension plans and an investment into an unregulated overseas agricultural bond was made.
In January 2013, a further £24,850 was transferred from a remaining personal pension plan and all remaining funds not invested in the bond were kept in cash.
St Martin’s Partners invoiced the Sipp provider in October 2012 for £1,432 for setting up the Sipp and an additional adviser fee was paid to St Martin’s Partners following the January 2013 transfer.
In November 2016 Mr G complained to St Martin’s Partners saying the firm had “attempted to operate and service on an execution-only basis” but this hadn’t been properly carried out.
But St Martin’s Partners dismissed Mr G’s complaint claiming that both Alternative Asset Finance and St Martin’s Partners operated on an execution-only basis throughout the process.
St Martin’s Partners had used part of its business called Alternative Asset Finance to provide transfer services to the client.
St Martin’s Partners said: “In transferring the client’s pension fund into a Sipp Alternative Asset Finance were carrying out, at the request of the client, a purely administrative service on an execution-only basis.
“Neither we nor Alternative Asset Finance have at any time given advice to the client relating to the transfer of the client’s pension or any investments subsequently made through the Sipp."
The Financial Conduct Authority’s definition of an execution-only transaction is “a transaction executed by a firm upon the specific instructions of a client where the firm does not give advice on investments relating to the merits of the transaction and in relation to which the rules on assessment of appropriateness do not apply.”
St Martin’s Partners said that Mr R had been aware on what basis the services were being provided and that he had signed an execution-only notice which had clearly set out that no advice would be given.
But, an adjudicator at the Fos said St Martin’s Partners should have known that pension transfers can be complex and few clients had enough knowledge to weigh up the risks and benefits of pension transfers without receiving advice.
The adjudicator also said the firm should have known that consumers like Mr R were at risk of suffering a financial loss by transferring a pension without taking advice.
He believed the firm should have refused to accept the Sipp and transfer applications.
Therefore he concluded that the firm was liable for any losses suffered by Mr R.
What's more, the firm argued Mr R had initially instructed Finance in Medicine Limited not St Martin’s Practice and that all regulatory responsibility for Alternative Asset Finance was with Finance in Medicine from March 7, 2011 until August 28, 2012, when it became part of the advice firm. Finance in Medicine Limited is no longer trading.
The firm said Mr R had been introduced to Finance in Medicine in July 2012 and instructed them to set up a Sipp, obtain transfer papers and proceed with the transfer. On July 28 Mr R signed the agreement for the execution-only transfer.
But ombudsman Louise Wilson decided that Mr R was a client of St Martin’s Partners during the relevant time.
Ms Wilson said: “I have seen a letter from the Financial Services Compensation Scheme (FSCS) in respect of a claim made to that service along similar lines to this one made about St Martin’s Partners, about Finance in Medicine.
“This letter sets out FSCS’ finding that they couldn’t consider the claim, as it ought properly to be made to St Martin’s Partners.”
Ms Wilson believed that St Martin’s Partners played a sufficient role in the activities that led to a Sipp being started in Mr R’s name and his funds being transferred into it, that they should bear responsibility for any losses.
She also concluded that Mr R could not be described as a true execution-only client.
Ms Wilson said: “I also don’t think that the usual type of individual who would act on an execution-only basis, open a Sipp and make an unregulated investment with over 50 per cent of their pension funds, would be the type of person who would later start making monthly contribution of £30 or leave the remainder of the Sipp in cash.”
Due to this, the Fos ordered St Martin’s Partners to calculate whether Mr R had made a loss and if he had to address this.
It must also pay £450 to Mr R to reflect the distress and inconvenience caused.
If the case is transferred to the FSCS the maximum payout Mr R would get is £85,000.
amy.austin@ft.com
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