The Financial Ombudsman Service has instructed a financial advice firm to compensate a client it believes was ill-advised to transfer two pension funds into a "hybrid" Self-invested personal pension plan (Sipp).
The client contacted Insight Financial Associates Limited in 2012, dissatisfied with the "poor" performance and charges of his current pension funds.
The client held two funds with separate providers, with a combined transfer value of £50,000 and with one plan containing a guaranteed annuity rate and a guaranteed minimum fund value.
Insight advised the client to transfer both his pension plans into what it described as a "hybrid Sipp" and suggested the transferred funds be invested into structured products.
Following the transfer of the client’s funds to a new provider later that year, there was a delay in completing his investment into the structured products - for which Insight paid some compensation to the client in a "gesture of good will".
In 2014 Insight ceased receiving ongoing advice fees from the client's investments.
The Fos ruled Insight had inappropriately advised the client to transfer his pension funds to the new provider, finding the firm had not shown clear benefits to the transfer which had also incurred a "significant" encashment penalty of approximately 1.5 per cent.
It also found cost of the Sipp, given the amount he was transferring, was disproportionate.
Ombudsman Paul Reilly said: "I have noted that in its suitability document Insight noted that it wouldn’t normally recommend a Sipp for a fund value of less than £75,000.
"But I have also considered what Insight says about the product recommended to Mr R being a hybrid Sipp with lower charges than a normal Sipp but allowing greater investment flexibility than a personal pension.
"The client incurred a significant encashment penalty in moving his funds from one of the providers.
"And he lost two guaranteed benefits in transferring his pension from the other provider, so I’m not persuaded that the ongoing costs that the client needed to pay after his funds had been reinvested, would have been significantly less than he was paying previously."
Despite the client being keen to access a lump sum from his pension when he reached 55 years of age, which is something he would be able to do following Insight’s recommendation, the ombudsman found this request should not have weighted the advice given.
The ombudsman said: "But at the time the recommendation was made, the client was only 49 years of age.
"So I think that should have led to Insight giving less weight to what might happen some six years later.
"Instead I think it should have concentrated on what seems to be the client’s primary reason for engaging the firm – that his existing pension plans were not providing him with sufficient investment growth.
"And it seems part of the reason for that was the levels of charges that he was paying."
As well as ordering Insight to redress the client with regard to the notional values of his pension policies had they remained in the same funds pre-transfer, the ombudsman requested the client be paid £300 for "distress and inconvenience" caused by the transfer.