The Financial Ombudsman Service (Fos) concluded advice firm L J Financial Planning (LJFP) should pay out after it found it did not consider the client’s underlying investment strategy when advising him to consolidate and switch his pensions.
The client, who the Fos called Mr P, had been exploring the option of investing in overseas property via an unregulated collective investment scheme (Ucis) and was put in contact with a number of advisers to help him make the investment.
He first got advice back in 2011 but chose not to proceed due to high fees.
Mr P instead went to LJFP and in 2012 the adviser recommended he consolidate and switch his three personal pension plans into a Sipp.
The firm noted that Mr P would not be taking advice regarding the investments that would be held in the Sipp as he would be selecting these himself.
Mr P’s Sipp was opened in May 2012 and it received transfers totalling £26,466 from his personal pensions.
In July, £21,375 was used to acquire the Ucis investment and of the remainder, £1,000 was paid to LJFP for the advice, and £810 went to cover the Sipp provider fees.
But in May 2017, the Ucis investment was valued at £0 and Mr P complained to the advice firm.
LJFP argued it had done nothing wrong because it had not provided Mr P with advice on the investment within the Sipp and Mr P had already made his decision to invest in the Ucis before he was introduced to LJFP.
Ombudsman’s findings
Ombudsman Hannah Wise decided to uphold the complaint after she found the firm should have considered the investment when switching Mr P’s pensions to a Sipp.
LJFP argued that Mr P was influenced by advice provided by other firms, including a business that had conducted a pension review previously.
However, Ms Wise said she had seen the report provided by the previous adviser and found while it recommended that Mr P should take out a Sipp, it did not mention the Ucis investment or make any comment on the suitability of it.
Therefore, Mr P did not rely on previous advice with regards to the underlying investment when he spoke with LJFP.
Ms Wise also found the pension review concluded that Mr P had a low-medium attitude to risk no advice was provided in respect of Mr P’s personal pensions or the Ucis.
She said: “I think Mr P’s decision to switch the benefits he held in personal pensions to a Sipp was based on advice provided by LJFP [...] So, I’ve considered LJFP’s obligations to Mr P when providing this advice.”
The Fos found although LJFP had carried out a fact-find, it did not collect any information as to the nature of the investment Mr P was intending to make.
The Sipp application form also showed that LJFP was the only regulated adviser involved.
LJFP argued that Mr P wouldn’t have followed the advice if it had advised him not to invest in the Ucis as he’d already decided to invest in it before speaking to LJFP.
But the Fos said there was no evidence to suggest Mr P had already signed contracts with the investment provider before being introduced to LJFP.
Ms Wise also found the Ucis investment was unsuitable for Mr P as he did not have very much investment experience and had had little capacity for loss.
Ms Wise said: “I don’t think he should’ve been advised to take any unnecessary risk with these funds.
“The potential for losses was very real and Mr P had less than 10 years until he expected to retire, meaning he would have little time to recoup any losses.”
She added: “Mr P only took out the Sipp to facilitate the investment in the Ucis, so I think he would’ve stayed invested in the personal pension plans but for LJFP’s advice.
“This means I don’t think Mr P would’ve taken out the Sipp at all.”
The ombudsman ordered the firm to put Mr P as closely into the position he would now be in if he had been given suitable advice.
It must also refund the fees Mr P paid for the Sipp as well as £300 for the trouble and upset caused.
amy.austin@ft.com
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