Regulation  

Adviser loses High Court case challenging Sipp decision

Adviser loses High Court case challenging Sipp decision

An adviser has been blocked from challenging a number of decisions made by the Financial Ombudsman Service in relation to the firm's failure to properly advise on a pension transfer.

Mr Justice Sweeting ruled against Portal Financial Services yesterday (March 28) after it took the Fos to the High Court over whether it should be responsible for the entirety of a client’s losses after a number of pensions were invested in unregulated collective investment schemes.

Portal advised on a number of pension transfers for a number of clients of Cherish Wealth Management between 2014 and 2015. 

The court heard Portal was introduced to the clients of Cherish to advise on the suitability of transferring their existing pension arrangements (which were under occupational and personal pension schemes) into a self-invested personal pension.

The intention was then for Cherish to provide further advice on the investments to be held within the Sipp wrapper, and it did so for all but one of the clients in question.

Portal undertook due diligence in relation to Cherish and was assured that it did not recommend or promote Ucis.

But without Portal’s knowledge, all but one of the interested parties was advised to invest a portion of their pot into high-risk Ucis and suffered a loss as a result.

Both Cherish and Shah Wealth Management, to which Cherish was the appointed representative, commenced winding up in July 2016. 

The clients involved made complaints to the Fos in relation to the transfer advice given by Portal and the ombudsman found against the firm, saying:

  • Portal was not entitled to divorce advice on the suitability of the pension transfer from the suitability of the underlying investments, or to rely on Cherish doing so;
  • Accordingly, Portal failed in its primary duty to properly advise on the suitability of the transfer; and
  • As a result, although Cherish “may also have separately caused” some of the client’s losses, the Fos said Portal failed in its primary duty to properly advise on the suitability of the transfer.

Portal claimed the Fos acted irrationally in concluding that FCA guidance relating to pension transfers represented “good industry practice”, and that there was an error of law in failing to apply principles to the specific context in which Portal was advising. 

The guidance in question says when a financial adviser recommends a Sipp knowing the customer will transfer or switch from a current pension arrangement to release funds to invest through a Sipp, then the suitability of the underlying investment must form part of the advice given to the customer.

If the underlying investment is not suitable for the customer, then the overall advice is not suitable.

Portal also claimed the Fos failed to take account of the "reasonable assumptions" that it was entitled to make under the FCA's handbook, which required it to compare the benefits likely (on reasonable assumptions) to be paid on a defined benefits pension scheme with the benefits afforded by a personal pension scheme before it advises a retail client to transfer out of a defined benefits pension scheme.

The company also challenged that it should be 100 per cent liable to the interested parties.

In one of the cases Portal argued against, the Fos said Portal was not wholly responsible for the losses simply because Cherish and Shah are now in liquidation. 

“[Portal] gave unsuitable advice and it is responsible for the losses [the client] suffered in transferring to the Sipp and investing as he did.