Ombudsman finds in favour of insistent client

An ombudsman has ordered advice firm Portafina to pay compensation after giving unsuitable advice on a pension transfer, despite the client acknowledging he was "insistent".

Portafina told the client, referred to as Mr C, the critical yield was unlikely to achieve a growth rate to match the guaranteed benefits of his occupational pension scheme and recommended against the transfer.

But Mr C still wanted to go ahead with the transfer to a self invested personal pension (Sipp) and Portafina agreed to help him if he completed an "insistent customer form".

As a result of the transfer, the client now has illiquid investments and is unable to take benefits from his pension, but the investments cannot be sold or exchanged for a cash sum without incurring a substantial financial loss.

Following a complaint to the Financial Ombudsman Service, it ruled the adviser had given poor advice and compensation should be made to the client to put him in position he would now be in if he hadn’t transferred.

David Ashley, an ombudsman at the Fos, said: "Our adjudicator asked Mr C what he would have done had everything been explained to him in understandable terms. Mr C has said he wouldn’t have made the same decision to transfer.

"Clearly, I need to treat his evidence with some caution given it’s said with the benefit of hindsight. But I think, ultimately, it came down to a choice of having a guaranteed income in retirement or a new conservatory.

"I accept that Mr C would likely have thought a new conservatory might have been nice to have. But it doesn’t appear that the adviser discussed Mr C’s reasons for not accepting the recommendations and advised that it just wasn’t a financially sensible decision to transfer given his circumstances and the risks of a significantly lower pension.

"Accordingly, I’m not persuaded that the transfer was suitable given Mr C’s circumstances, his moderately cautious attitude to risk and the critical yield required on the transfer value. And neither am I persuaded that Mr C would have insisted on the transfer if the adviser had discussed his reasons for insisting on it, explained his options in full and still recommended against it."

As well as a conservatory, Mr C wanted to access tax-free cash to build an emergency fund but wasn’t able to access his funds until the age of 65 so he chose to transfer his scheme to a Sipp to access a tax-free lump sum of £15,000.

The transfer value at the time was £63,000 and the critical yield required on the transfer value to match the benefits from the former scheme was 10.1 per cent, leading Portafina to tell the client that it was not in his best interests to transfer.

Portafina told Mr C if he still wanted to make the transfer, it could treat him as an "insistent" customer and that he would need to complete an insistent customer form which it included with its letter.