Adviser told to refund fees after 'unnecessary' pension switch

Adviser told to refund fees after 'unnecessary' pension switch

An adviser has been ordered by the Financial Ombudsman Service to pay back fees to its client after it found that its advice to switch providers was redundant.


In May 2017, the client who the Fos named Mr B met an adviser at Celandine to request a second opinion on the advice he received from another company about taking an enhanced cash equivalent transfer value of his benefits from his defined benefit pension and transfer it to a personal pension plan.

The enhanced transfer value on offer was approximately £680,000 but it had to be invested with a particular pension provider, which the Fos called Provider X.

To get full protection from the Financial Services Compensation Scheme the Fos noted that Mr B would have been able to invest in 14 different funds through the provider.

Provider X did not provide actively managed portfolios however, therefore Celandine advised Mr B to switch to a different provider (Provider Y), after the original transfer was completed.

The switch to Provider Y paid Celandine 3 per cent in commission and the fee Mr B would have to pay would be about £20,000.

As Mr B was unhappy with the fees that he was going to be charged Celandine agreed to a revised proposal to reduce the fees to 2 per cent of the transfer amount or about £13,609. 

This was not agreed and further discussions took place between Mr B and the business after which it was finally agreed that the initial adviser charge would be 3 per cent on the first £100,000 of the pension value and 1 per cent on the remainder.

This meant the fee was £8,600.

However, in November, after the transfer had completed, Mr B met with Celandine and had a dispute about the role and skills of the adviser and the fees that were being charged. 

Following this Celandine decided to terminate its relationship with Mr B. 

It made an offer to put Mr B into the position that he would have been in had the switch to Provider Y never taken place. 

The adviser noted that Mr B had transferred £680,423 and that in November 2017 this had been worth £677,299, therefore it agreed to make good the reduction of £3,123 if Mr B agreed to accept its offer within the next seven days. 

Mr B did not accept the offer and wanted the full fee that he had been charged refunded. 

Ombudsman Adrian Hudson concluded that there was “no strong reason” why Mr B needed to switch from Provider X to Provider Y.

He decided there was a sufficiently wide spread of funds that Mr B could select from to invest in with Provider X so there was no need for him to subsequently switch to Provider Y and incur £8,600 in adviser fees.

The initial charge was deducted from Mr B’s pension policy but Mr Hudson said as it was unlikely the redress will be able to be paid back into the fund, it should be paid as a lump sum.