An advice firm has won £74,000 in compensation for its client after it discovered he had been inaccurately advised to transfer out of his defined benefit pension in a case dating back to the 1990s.
Neil Liversidge, managing director of West Riding Personal Financial Solutions, first noticed his client may be entitled to compensation when he was giving advice on the client’s workplace pension and discovered he also held a pension with Royal London, which dated back to 1992.
This had started as a personal pension plan with financial planning firm Acuma, formerly Devonshire Life.
Acuma was later sold in 1993 to the United Friendly group which merged with Refuge Assurance in 1997 to form United Assurance Group. In January, 2000 Royal London bought UAG.
The personal pension plan came about after a salesperson from Acuma had advised the client, who wants to remain anonymous, to transfer out of a DB scheme which he held with his previous employer Gestetner, a reprographics company.
Mr Liversidge said this raised alarm bells as many DB transfers carried out in the early 1990s were invalid, so he submitted a complaint on his client’s behalf directly to Royal London to seek redress.
Mr Liversidge said: “From my experience of the period, I knew very few DB transfers done in the early 1990s were valid. I had blocked dozens of transfers out of the NHS, teachers, mineworkers and other such schemes.
“As soon as I knew his Royal London pension had come about as a result of a transfer out of Gestetner’s occupational scheme, I figured we should file a complaint.
“Acuma’s funds have been poor performers, and I knew there was no way he could have been better off due to the transfer.”
The complaint was successful and Royal London agreed to pay £74,167 into the client’s pension plan, as well as £500 for the trouble and upset caused.
A Royal London spokesperson said: “The client was advised in 1992 to transfer out of his final salary pension by Acuma. After reviewing the sale, we did not believe the advice to transfer was suitable and we carried out a loss assessment based on the guidelines of the regulator.
"We have looked to put the customer back in the position he would have been had he not transferred the plan, and we understand the offer we have made has been accepted.”
WRPFS can pursue claims on behalf of its clients as it holds claims management permissions, something which Mr Liversidge has encouraged all adviser firms to consider.
In April, the FCA became the regulator of CMCs and its rules state that if a firm carries out regulated activity they will need to get permission, unless they are exempt.
These activities include seeking, referring, advising and representing clients with their claims, including claims made to the FSCS.
Mr Liversidge said: “We decided to obtain the FCA’s claims management permission precisely so that we could help genuinely-wronged clients obtain fair compensation and keep the vast bulk of it.
"Ambulance-chasing CMCs typically charge 35 per cent plus VAT. On that basis the client would have paid £31,360 as a ‘success fee’ to the CMC. Our charge based on time spent was just £750."
He added: “I would urge every genuine IFA firm to obtain the claims management permission and to offer an ethical, honest claims service.
“There are people out there who are genuine victims of mis-selling. If we and firms like ours can make victims whole again at minimal cost then that has to be good for the reputation of the profession as a whole.
“Our process starts by vetting the claim and by explaining how the client can claim for free via the Fos and FSCS at nil cost to them. Some still want us to handle it so if we think they have a valid case we take it on for a pre-agreed fee based on the time it will take.”
But Ricky Chan, director and chartered financial planner at IFS Wealth & Pensions, warned against encouraging advisers to partake in this activity, as they may get caught out by regulation, which could affect their professional indemnity cover.
Mr Chan said: “Unless clients are willing to pay a non-contingent fixed fee to review past advice given, which is rare, this would likely have to be done on a contingent basis and firms would be forced to continually defend against sometimes speculative complaints, wasting resources and time, and affecting PI cover.
“Rather it should only be done when poor advice sticks out like a sore thumb, and is obvious that the client did not understand the risks involved and has suffered financially because of it. Then the client should be encouraged to raise a complaint to the relevant advice firm/Financial Ombudsman Service.”
Paul Stocks, financial services director at Dobson & Hodge suggested DB advice cases were different nowadays than in the 1990s ahead of the regulator's pension review.
In 1994, the then industry regulators, the Securities and Investments Board and the Personal Investment Authority (later the Financial Services Authority), established the Pension Review amid concerns about the mis-selling of personal pension policies.
The review looked at sales of personal pension policies between April 29, 1988 and June 30, 1994.
Mr Stocks said: “Back in the 1990s the considerations in respect of DB transfers were different to today, given that they predated ‘freedoms’ and the advice no doubt hinged on high expected investment returns and annuity rates delivering a better outcome than DB schemes.”
He added: “I would strongly suspect that any recent advice being given in respect of DB advice in no way suggests that the income will be higher by transferring out, more that the nature of the benefits can be shaped to meet client objectives which otherwise may not be achievable by remaining in the scheme.
“Essentially, there are many more considerations now than simply ‘the income will be higher’ which was likely to have been the case previously.”
amy.austin@ft.com
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