The Financial Ombudsman Service has told an advice firm to compensate a former client over its "wrong" advice on a self-invested personal pension transfer.
In the decision in December last year, ombudsman Gideon Moore upheld a complaint by ‘Mr M’ and said the firm should put Mr M back in the position he would have been if he had been given suitable advice.
Mr M said he received a cold call offering a review of his pension from a representative of ‘UK Life’ in 2017, who referred him to Pi Financial Limited.
Pi obtained Mr M’s existing financial arrangements in October 2017, and in a suitability report in November that year the adviser said Mr M was looking to diversify his pension into "more exciting asset classes" without making additional contributions.
Mr M had a Standard Life plan which was invested in its ‘mixed blend’ fund and charged 0.27 per cent (as part of a group personal pension discount). He also had an Abbey Life plan invested in its international fund, and an Aviva plan invested in a with-profits fund.
At the time, Mr M was 50, co-habiting with no dependents and planned to retire at age 67. He had a £90,000 mortgage on his main residence, worth £250,000, which he expected to be paid off by age 58 and another property worth £100,000 as well as a plot of land that he was looking to build properties on.
A questionnaire showed Mr M had an attitude to risk score of eight out of 10, however the Pi adviser noted that his assets were not easily realisable into cash and he should be classed as more of a middle of the road balanced investor, though he also said Mr M had a high capacity for loss.
The adviser said some of the plans Mr M was invested in were ‘old school’ and offered insufficient investment options overall.
Recommendations
Pi recommended Mr M transfer his pension into an Intelligent Money Sipp, with ‘recommendations’ from Mayfair Capital Limited.
The Fos said of Mayfair Capital: "Whilst it appears to have been Mayfair’s long-term intention to become a DFM and it has since gained the FCA ‘managing investments’ permission, it was a new entrant to the market in 2017 and did not yet hold that permission."
The recommended Sipp had higher fees than Mr M’s original investments, however he believed these charges would be covered by higher growth in the portfolio.
An ombudsman investigator concluded that Mr M should not have been advised to switch to the Sipp or invest in Mayfair Capital, and had he been “properly informed” of the lower cost and guarantees of some of his existing arrangements, he would not have decided to switch.
The investigator took into account the possibility that Mayfair’s recommendations may also have contributed to Mr M’s losses, however concluded that Mr M only ended up in the Sipp as a result of Pi’s actions.
Mayfair Capital has also been referred to the Fos over Mr M's complaint.
The Fos decided that Mr M needed to grow a sufficient pension fund as much as he could, and the best way of doing this was to keep costs low.
It referenced guidance released by the then-Financial Services Authority in 2012 saying advisers needed reasonable belief that the investor could understand the nature of the risks of the underlying investment an investment manager would be making for [them].
“Mr M does not strike me as the type of investor who would be willing to engage with, understand or appreciate the benefit of regular engagement with an investment manager of the sort Mayfair would offer,” Moore said.
He also criticised Pi for not conducting adequate due diligence on Mayfair Capital.
“Mayfair had only recently been established in 2016 and authorised about six months before Pi recommended it to Mr M, so particular care should have been taken,” he said.
In his ruling, the ombudsman said if Mr M had been given suitable advice, he would have invested differently, for instance within the Standard Life pension or a combination of the Standard Life and Aviva pensions.
He set out a benchmark to allow the compensation to be paid, which was the FTSE UK Private Investors Income Total Return Index, which the ombudsman said represented a fair measure of someone who was prepared to take some risk to get a higher return.
A spokesperson for Mayfair Capital Limited said: "Mayfair Capital provided an investment advisory service with full regulatory oversight.
"Our firm takes regulatory compliance very seriously and we have always strived to ensure that we are compliant with all relevant regulations.
"We have robust compliance procedures in place and conduct regular reviews of our policies and procedures to ensure we are always meeting these requirements."
Pi Financial Limited has been contacted for comment.
sally.hickey@ft.com
