The Financial Ombudsman Service has ordered an adviser to pay compensation to its client after it found it had given advice on a pension transfer and failed to take into account the subsequent unregulated investment.
In a decision published in November, the Fos decided that the firm should put its client into the position he would have been in if he had been given suitable advice after his pension funds were transferred into a self-invested personal pension to invest in overseas commercial property.
The client, who the Fos called Mr S, complained that adviser Feast Noble and Company did not act according to its regulatory obligations when it arranged the transfer of his pensions to a Sipp, which facilitated an "unsuitable" unregulated investment.
An unregulated introducer first referred Mr S to Feast Noble in 2011 and the firm later issued a direct offer which confirmed that Mr S wanted to apply for a Sipp with a specific provider.
Over £40,000 of Mr S’s existing pension arrangements were transferred to the Sipp in February 2012.
A month later he took tax free cash of £10,000 and £23,000 was invested in a car park space in Dubai. Rent was paid from the car park every six months.
But Mr S complained to the Ombudsman after he failed to receive the full five year income payments or a return of capital from his investment.
An adjudicator at the Fos decided to uphold Mr S’s complaint, finding that the direct offer by Feast Noble had amounted to advice and a recommendation to start a Sipp with a particular provider.
The adjudicator also said when a regulated firm receives a referral from an unregulated source it “should consider what role the introducer has played in guiding or influencing the consumer”.
Therefore it believed Feast Noble should have considered the suitability of Mr S transferring his existing pensions to a Sipp and looked into where the pension fund would then be invested.
But Feast Noble argued while it had arranged the transfer to a Sipp it did not advise on the suitability of the Sipp wrapper or how the pension funds should be invested.
It said the firm provided execution only services and did not realise that Mr S was planning to invest in overseas property otherwise it would have advised Mr S against this investment.
Ombudsman Lesley Stead sided with the adjudicator and concluded that the direct offer amounted to advice as it contained an element of opinion.
Ms Stead said: “It went beyond merely providing factual information and as such was objectively likely to influence Mr S’s decision to transfer to a Sipp with the named provider. And it seems Feast Noble had gone through a process of selection and had made a value judgment about the particular Sipp provider.”
This conclusion was reached after she found the direct offer failed to mention the drawbacks of using a Sipp and was misleading about the tax benefits.
She said: “All in all, and taken in context, my view is that what was said can be construed as a value judgement as to the merits of transferring to a Sipp with the named provider to permit investment in commercial property.”
As Ms Stead believed the direct offer amounted to advice, she said that Feast Noble should have considered the proposed investment and warned Mr S about the risks involved.
She also said the firm should have been wary about the involvement of an unregulated introducer.
Ms Stead went on to say: “Feast Noble should have been alive to the possibility that the introducer (who was precluded from giving financial advice) may have been overly positive about the prospects of the investment it was marketing.
“Feast Noble should also have recognised that an unregulated overseas commercial property investment was unlikely to be suitable for the vast majority of ordinary retail clients and that there was potential for consumer detriment.
“Against that background Feast Noble should have thought carefully about whether it should have arranged the Sipp for Mr S to permit that sort of high risk, non-mainstream investment.”
Feast Noble was ordered to put Mr S as close as possible to the position he would be in now if he had been given suitable advice.
It must also pay £300 for the trouble caused.
amy.austin@ft.com
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