The client, who the Financial Ombudsman Service called Mr B, met with an adviser at Cowley & Miller in 2012 to discuss his two pension plans. One had a transfer value of about £23,000 and the other was worth just more than £19,000, and was no longer receiving any contributions.
Mr B was advised to transfer one of his pension plans, which was no longer receiving any contributions, into a Sipp which then invested in carbon credits through the Carbon Advice Group, an unregulated investment.
Due to the carbon credits fund not being authorised under the Financial Conduct Authority remit, if it failed there would be no protection from the Financial Services Compensation Scheme.
Therefore Cowley & Miller had advised Mr B that the maximum invested out of his pension fund should be 10 per cent but Mr B decided to transfer the whole of his £19,000 pension.
Although the ombudsman highlighted that the suitability report on the investment included warnings about the risks involved in investing in carbon credits, including the possibility of total loss, the report also made positive comments about this type of investment.
For example, it said that market volumes for this type of carbon credit were forecast to grow significantly between 2010 and 2012.
Mr B complained to Cowley & Miller in February 2017 about the advice he was given.
The ombudsman said: "The transfer value being considered was just under half his total pension fund. I don’t think Mr B was in a position to incur a significant loss to this money, which in reality is what has happened.
"As I understand it, Mr B’s investment is currently illiquid and can’t be realised."
Cowley & Miller stated it had explained that the investment was high risk, and there was a real potential for partial or complete loss. But despite these warnings, Mr B decided to proceed with the investment.
The adviser also argued that it had recommended that only 10 per cent of Mr B's transferred fund should be invested in carbon credits but it was Mr B’s insistence that his entire fund should be invested.
But according to the Fos, although the client had been disappointed with the investment performance of his existing plan, it did not justify the recommendation to transfer to a Sipp.
Instead the Fos stated that Mr B should have been advised to give greater priority to conserving the pension fund he already had under the circumstances.
The Fos stated that it had "not seen evidence Cowley & Miller undertook the required process so as to treat Mr B as an insistent customer - that is, someone who wants to act against the advice they are given".
It stated: "As far back as 1994 a former regulator (FIMBRA) published guidance (about pension transfers and opt outs) which included the following: ‘The investor’s decision to override the adviser’s recommendation should also be credibly evidenced.
"'Disclaimer forms and pre-printed letters using stock phrases should not be used since they cast doubt upon the genuineness of the process.
"'A note from the customer in his own words is best. Compliance officers will be expected to record the number of cases in which the investor overrides the advice of financial advisers within the organisation and to investigate thoroughly those cases where there may be doubts about the credibility of the actions taken by the investor.’"
The Fos came to the conclusion that the advice given to the client was unsuitable and exposed his pension to a level of risk which was too high for him.
The ombudsman stated: "Cowley & Miller should have advised Mr B not to transfer his pension. But it didn’t do this."
The Fos ordered Cowley & Miller to pay compensation to the client and to compare the performance of Mr B’s investment with a benchmark based on FTSE returns and fixed rate bonds.
This was so that Mr B was "put as closely as possible into the position he would probably now be in if he had been given suitable advice".
The advisers must also pay £300 to the client for the trouble and upset caused by the loss of his pension.
amy.austin@ft.com
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