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Pension switching advice from 2010 comes to haunt adviser

Pension switching advice from 2010 comes to haunt adviser

An adviser has been caught out after it failed to advise on the suitability of a property investment when recommending a self-invested personal pension switch.

In a case based on events which took place in 2010, the Financial Ombudsman Service ruled Insight Financial Associates had failed in its duty to look into the investment its client was going to make when switching to the Sipp.

Ombudsman Caroline Stirling ordered the firm to reimburse the client's pension that he would have had had he never invested in the unregulated scheme and to pay £250 for the trouble and upset caused.

The case

In 2010 Insight advised the client, who the Fos called Mr K, to transfer his existing Sipp, worth £37,000, to a new Sipp for the purpose of making an unregulated overseas property investment.

But in 2018, when Mr K looked to sell the investment, he found out that it was unlikely the property could be sold. 

He complained to Insight, saying that the investment was too high risk, and unsuitable for his purposes, and later to the Fos.

According to the ombudsman, Insight had provided limited advice to Mr K about the Sipp he transferred into, and had recorded minimal information about his circumstances.

Insight said it had not provided advice on the investment, only the Sipp. But it did know the Sipp’s only investment would be the overseas property Mr K had agreed to buy. 

However, the advice firm had a duty, in line with the then Financial Services Authority’s rules, to act in Mr K’s best interests and give suitable advice.

The ombudsman said it was not possible for Insight to do this without taking account of the Sipp’s underlying investment.

The rules state: “…where a financial adviser recommends a Sipp knowing that the customer will transfer out of a current pension arrangement to release funds to invest in an overseas property investment under a Sipp, then the suitability of the overseas property investment must form part of the advice about whether the customer should transfer into the Sipp.”

Suitability

The overseas property investment was an unregulated collective investment scheme (Ucis). 

The Fos found that Mr K’s circumstances did not suggest he was prepared to lose all his money in the pension scheme or that he was suited to the risks the investment presented. 

Stirling said Mr K had no experience of this type of investment and no history of taking these kind of risks and decided that Insight’s advice to proceed with the Sipp and its associated investment was unsuitable.

She said if Insight had advised Mr K that this investment was not in his best interests and unsuitable for him, it was likely he would have taken account of that advice.

Stirling said: “I didn’t consider Mr K was committed to buying the property and could have chosen not to proceed if Insight had advised against it.