The Financial Ombudsman Service has ordered an adviser to reimburse their client after transferring their pension without carrying out the appropriate suitability checks.
Insight Financial Associates Limited had advised a client to transfer his personal pension to a self-invested personal pension and to then invest in overseas property scheme, named by the Fos as The Resort Group.
TRG is a luxury hotel chain based in Cape Verde that has attracted significant amounts of UK pensioner money in the past decade. The Fos found the client, whom it dubbed Mr H, had been unsuitably advised by Insight as the investment was beyond his appetite for risk.
Mr H first complained to Insight about its advice in 2018 after his new financial advisers told him it had been unsuitable. But Insight had rejected the complaint on the basis that it had not provided advice on the investment, only on the transfer into the Sipp.
However, the Fos referring to Financial Conduct Authority rules and guidance indicating it is not possible to distinguish between the two.
Rules that stood at the time of the transfer, later reiterated by the regulator in 2013, stated: "There are clear requirements under the FSA Principles and Conduct of Business rules and also in established case law for any adviser, in the giving of advice, to first take time to familiarise themselves with the wider investment and financial circumstances. Unless the adviser has done so, they will not be in a position to make recommendations on new products.”
The Fos said the sole reason for the transfer to the Sipp was to facilitate the investment. Given that the investment was unsuitable, the transfer was also unsuitable.
Mr H received advice from Insight in a suitability report dated September 8, 2009.
The advice was to transfer £66,318 of his personal pension and purchase a 45 per cent stake in an ‘off plan’ apartment on the understanding he would later purchase the remaining 55 per cent with a view to renting it out or that it could be sold at a profit.
Mr H’s investment in the development was later transferred to part ownership of another smaller apartment.
The Fos adjudicator felt the Cape Verde property was not a suitable investment because it pooled too much of Mr H’s investment into a single asset that was illiquid, potentially difficult to sell, and added significant extra cost.
It was also not covered by the same investor protections as the transferred pension.
The adjudicator said Insight had not collected enough information to give advice in 2009, as Insight’s fact find did not have any information about Mr H’s pension objectives, his cash flow and current assets or a completed risk questionnaire.
He did not agree with Insight that because Mr H had been introduced to it by a regulated mortgage broker, it did not need to collect this information.