In a decision upheld in May the ombudsman ruled the client had been unsuitably advised to transfer into a self-invested personal pension (Sipp) by an appointed representative of Intrinsic, a recommendation for which the authorised company is ultimately responsible.
The client was first cold-called by the adviser in 2013 with an offer to review his financial arrangements, which he accepted with regard to his pensions.
When the client met with the Intrinsic adviser he was aged 51, married with no dependent children, self-employed with an income of £20,000 a year and planning to retire at 65.
He had two personal pension policies, one worth about £13,800 and the other £1,350, was paying £30 gross into one of the plans and had not reviewed either until he was cold-called.
According to the ombudsman the client's main objectives were recorded as wanting to transfer his benefits for "better investment prospects", invest in an area he was comfortable with, consolidate his plans and have access to external fund managers.
The adviser recommended the client's funds be transferred to a Sipp, suggesting his current investments were too high risk to suit his profile and were underperforming similar funds in the market at the time.
The client was advised a Sipp would provide a number of benefits, although there were downsides including higher charges, and the transfer went ahead the following year.
Represented by a claims management company the client complained to Intrinsic, and ultimately the ombudsman, that the advice to transfer into a Sipp was unsuitable - a claim the Fos agreed with.
This was despite Intrinsic's protest that the report relied upon by the Fos adjudicator was "over ten years old and pensions legislation and adviser charging has changed since then".
Ombudsman Roy Milne said: "The advice process started with the client being cold-called. In my view, this is important as it suggests that without this intervention he’d have carried on as he was.
"The client agreement was signed in January 2014. I think this is also important as the client should have been told how much the advice would cost before being advised.
"If he hadn’t agreed to pay for the advice then it seems to me that there is a conflict of interest. Clearly, if the client couldn’t or wouldn’t pay for the advice, then for the adviser to be paid they needed to recommend a transfer."
Mr Milne said: "There were also some downsides to the transfer that were identified by Intrinsic. By transferring one of his pension plans, the client's provider would apply a small deduction to his fund value.
"And the future annual administration charge would be higher than the client was paying on the larger of his two existing pension plans."
Overt adviser charging was made mandatory on retail investment products in December 2012 with the Retail Distribution Review, which banned commission-based fees.
Cold calling was not illegal in 2013, at the time the advice in this particular case was given.
But in January of this year HM Treasury introduced a ban on cold-calling, prohibiting unsolicited calls about pensions and threatening fines of up to £500,000 on companies which break the rules.
Part of the rationale for transferring given by the adviser was that investing in the Sipp would provide the client with a wider range of options than those his existing provider offered, but the ombudsman ruled the client "didn't want, or need" a wide range of funds.
Instead, the ombudsman said, the client should have been advised to either keep his existing pension plans or transfer to a stakeholder plan.
According to the ombudsman Intrinsic calculated the new investment would need to return an additional 0.17 per cent a year to cover the increased administration charge on the larger plan.
He added: "My aim is that the client should be put as closely as possible into the position he would probably now be in if he had been given suitable advice.
"I take the view that the client would have invested differently. It’s not possible to say precisely what he would have done differently.
"But I’m satisfied that what I’ve set out below is fair and reasonable given the client’s circumstances and objectives when he invested."
rachel.addison@ft.com
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