SIPP  

Adviser to pay out over unsuitable Sipp transfer

Adviser to pay out over unsuitable Sipp transfer

An advice firm must compensate its client after the Financial Ombudsman Service decided there was no real justification for transferring his pension to a self-invested personal pension.

In a decision published in August, the Fos declared there was no obvious reason for the client to move from his existing pension plan to a Sipp as the fund he was invested in had achieved a reasonable level of growth and the Sipp was no cheaper in regards to fees.

In June 2015, the client, who the Fos called Mr S, was advised by Economic Financial Solutions IFA Limited, trading as Torch Wealth Management, to transfer his personal pension plan to a Sipp so that he would have more flexibility with making investments.

The Sipp funds would then be invested by a stockbroker under its discretionary management.

Torch then recommended the stockbroker’s conservative model portfolio as being suitable for Mr S and said the new Sipp plan was cheaper and offered a wider investment choice and flexibility.

A total of £76,331 was transferred into the Sipp and of this, £71,500 was passed to the stockbroker to invest and the rest was placed into a cash account.

Between October 2015 and March 2016, Torch was in communication with the stockbroker and the Sipp provider over concerns that the stockbroker wasn’t investing the funds in line with the model portfolio.

In August 2016, Mr S complained to the Fos about Torch’s advice to transfer his pension claiming the stockbroker had invested 95 per cent of his pension in “penny shares”, and this had resulted in a severe loss.

An adjudicator at the Fos believed his complaint should be upheld as Torch’s growth comparison between the existing plan and the Sipp given to Mr S was misleading due to it being based on the assumption that the Sipp would be invested in a higher risk portfolio. 

However, Mr S was advised to invest in the conservative model portfolio, which projected lower growth rates.

Torch did obtain a correct comparison a month before the transfer which showed the existing plan projected better returns than the Sipp. But the Fos heard Torch didn’t make Mr S aware of this and proceeded with the transfer. 

Therefore the adjudicator concluded that the advice to transfer to a Sipp was not suitable.

Torch also claimed it had partly recommended the transfer into a Sipp because it had lower charges than Mr S’s existing plan but ombudsman Doug Mansell found no evidence to support this.

The ombudsman found that the Sipp was not relevant to Mr S as it was unlikely he would have wanted to invest in the type of non-mainstream investments Sipp providers sometimes allow. Also this type of investment would not have been suitable for Mr S, in light of his attitude to risk.

Mr Mansell said: “The option of remaining in Mr S’s current plan was discounted by Torch. But I think this was a reasonable approach that should have been considered.