SIPPSep 9 2020

Hotel room advice comes to haunt IFA after 11 years

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Hotel room advice comes to haunt IFA after 11 years

Insight Financial Associates has been ordered to compensate a church minister whom it had advised to transfer his pension into an offshore property scheme during a hotel room meeting 11 years ago.

In a decision two years in the making, the Financial Ombudsman Service ruled in late August that Insight’s advice to Mr R to transfer his guaranteed pension into a Sipp which then invested in Cape Verde-based The Resort Group had been unsuitable.

Insight had argued it had not given advice on the underlying investment, only the Sipp transfer, but Ombudsman Lesley Stead said the advice to transfer into a Sipp had been as unsuitable as the advice to then invest in The Resort Group, and the two were interlinked in any case.

Mr R was introduced to the TRG investment by his son, who acted as an unregulated introducer for TRG and quasi adviser to his father, though he did not have any adviser qualifications.

The 58 year-old minister was then introduced to Insight with a view to signing off the pension transfer.

Hotel meeting

An Insight adviser met with Mr R, alongside a small group of other people, in a hotel room in 2009, where the pension transfer was discussed.

A suitability letter dated August 10, 2009 detailed that Mr R had received no advice from Insight and that the IFA’s role was to merely find a suitable Sipp provider to purchase the property.

It also said Mr R had completed a financial review with his adviser (his son) who had decided that a Sipp was suitable for his father’s needs and circumstances. 

Insight stated it had only been given limited information about the client’s finances and that the high risk nature of investing in a Cape Verde property was mentioned several times in the report.

For the service Insight was paid a £500 fee by the product provider and €1,999 (£1,800) by the developers.

Mr R told the Fos he “was impressed by his face to face advice” [given by Insight] and that the “adviser’s enthusiasm, the general ‘feel good’ atmosphere and the fact that others had agreed to invest” encouraged him and gave him confidence. 

Points of contention

There were several points of contention in the case, which led to the Ombudsman issuing two preliminary decisions before finally arriving at its final ruling.

One was whether or not Mr R had made up his mind about investing before he met the Insight adviser at the hotel.

Insight had referred to a reservation document for the TRG investment which was supposedly signed by the client before he met with his adviser - a fact Mr R disputed.

Insight also questioned why Mr R had not approached his Sipp provider when he turned 65 to ask about withdrawing his pension, having maintained previously that it had always been his intention to retire at that age.

Finally, it argued a later community project, which listed both Mr R and his son as directors, proved the minister knew about property development and had gone into the Cape Verde investment knowing of the risks and with his son’s support.

But the Fos did not consider these points relevant to the case.

The adjudicator said there was no justification for recommending that the 58-year-old move from a low risk pension plan with guarantees to a high risk and illiquid investment in an offshore property. 

The adjudicator also thought the charges were relatively high given the amount of pension money transferred (£39,077). 

Further, as the property cost £99,950 and the funds transferred were less than half that figure, it was not clear how Mr R was to fund the difference.

Wrong advice

Ombudsman Ms Stead said the advice was fundamentally wrong and not in line with regulatory rules now or at the time.

She added Insight should have taken into consideration the end investment and, if deemed unsuitable, advised against transferring the pension.

She said: "Insight’s advice was pivotal. If Insight had advised against I don’t think Mr R would have gone ahead.”

She said there was no evidence that this advice had been given or that Mr R had, as a result, been an insistent client.

The Ombudsman also took issue with Insight’s wording in its description of events.

The IFA had labelled advice as the only “problem” on the client’s path to investing in TRG, to which the Ombudsman retorted: “Insight has termed it a ‘problem’ that Mr R had to be referred to a regulated adviser for the switch to a Sipp to go ahead. 

“The issue is one of consumer protection. A requirement to take advice from an independent, trained and regulated professional adviser aims to avoid poor consumer outcomes and detriment. 

“Insight’s adviser had to give unbiased suitable advice. It wasn’t a case of simply continuing the process or ‘rubber stamping’ what Mr R thought he might want to do, based on what other, unqualified, parties may have told him. Transferring to a Sipp to invest in overseas property wasn’t suitable for Mr R. Insight’s adviser should have told Mr R that.”

Insight did not wish to comment for this article.

The IFA has been ordered to pay Mr R the annuity he would have received (£3,693) plus interest from the date each payment fell due to the date of settlement, minus 10 per cent in tax he would have paid. On top of this it must pay the 25 per cent tax free cash of £19,494.88 he would have been entitled to.

Insight will then need to pay him the current capital cost of providing an equivalent annuity minus 10 per cent tax. 

Finally it has been told to take ownership of Mr R's Sipp, or if impossible, pay all Sipp fees incurred in the next five years and pay £250 for stress and inconvenience.

Mr R's representative Chris Bryans, a financial adviser who also runs claims manager Complaints SOS, said: “Mr R would by any measure be considered a vulnerable individual and the poor advice has taken a toll on him and his wife.

"These cases are not easy... we are very grateful to the ombudsmen and their investigators who carry out a very difficult job with the utmost professionalism.” 

This was not the first time Insight was found to have rubber stamped an investment in TRG. In April the Fos ordered it to reimburse another client after transferring their pension without carrying out the appropriate suitability checks.

carmen.reichman@ft.com