An adviser has been told to pay out after its advice to transfer a pension to a self-invested personal pension (Sipp) was found to be inappropriate due to the charges involved.
The Financial Ombudsman Service (Fos) ruled that advice firm R&Quiem must compensate a client after the benefits of its transfer advice did not outweigh the higher cost.
The client, who the Fos called Mr H, was first in contact with the firm in March 2012 when he was in the process of passing over the administration of his group personal pension.
According to R&Quiem, Mr H wanted to maintain his own individual pension so that his salary details were kept confidential following the change of administrator.
Oval Financial Services, as R&Quiem was previously known, met with Mr H and advised him to transfer his benefits to a Sipp and resume regular contributions from his employer via salary sacrifice.
The adviser also said Mr H would have access to a wealth management portfolio service through the Sipp provider but in turn would face higher costs.
However, he would benefit from ongoing reviews and wider investment options in return.
In June 2013, after a review, it was recommended that Mr H stop the portfolio service because his pension had grown to a size where he was eligible for the provider’s discretionary fund management (DFM) service.
By July 2018, and after he had swapped advisers, Mr H was unhappy about the performance of the portfolio under the DFM and complained about the earlier advice he had been given to move his pension to a Sipp.
Mr H argued the combination of higher costs and poor performance had led to the value of his pension suffering.
He said it was R&Quiem’s advice to transfer and incur the higher costs, so it was responsible.
Ombudsman Keith Lawrence said there was no evidence to suggest that Mr H required the DFM service or that he had previously used one.
But R&Quiem argued Mr H was an experienced investor and would have seen the value in these services.
The ombudsman disagreed stating Mr H had only ever invested in an Isa, which does not support his need to use a DFM.
The Fos found that, in its illustration, the adviser had confirmed that based on assumed growth rates of 5 and 7 per cent, Mr H might be £24,000 and £27,000 worse off respectively at retirement due to the significant charges.
In real terms, the former pension scheme had an annual management charge of 0.65 per cent whereas the total calculated charge of the Sipp was 2.1 per cent as well as an initial 0.5 per cent transfer charge.
R&Quiem said this charge reduced to 1.9 per cent in June 2013 and also said that when comparing costs, the ongoing advice charge should be ignored in comparisons.
But Mr Lawrence said an ongoing cost was still charged and that wasn’t a cost that Mr H incurred with his old scheme.