The Financial Ombudsman Service has upheld a complaint against an advice firm for recommending a Sipp because it judged the initial commission to be unsuitably high.
In a decision published earlier this month, the FOS upheld a complaint against D M Cager for taking excessive commission payments from the first 12 months of payments into two clients’ Sipps following advice given in 2008 and has ordered the firm to pay around £30,000 to the clients.
One client was recommended to pay £4,000 a month into the policy and the second client to pay £2,000 a month into a separate policy.
The clients complained the commission would have a disproportionately high impact on their pension funds at retirement, and that they were not provided with alternatives to paying commission.
The ombudsman ruled the policies were missold because the high initial charges were unsuitable for the clients. It said there were other products available, including stakeholder pensions, which did not incur high initial charges.
Ombudsman Roy Milne said: “I am not satisfied a pension with high initial charges was suitable because if the contributions stopped before the selected retirement age, the effect of those charges would be significant.”
D M Cager says the commission was not just for setting up the Sipp but was also to cover a range of other advice provided to the company making the pension contributions but the ombudsman said the client agreement did not mention payment for non-pension work using any commission paid by the pension.
The FOS has ordered D M Cager to pay the difference between the existing pensions and a stakeholder pension, using the WMA stock market income total return index to provide a value for the stakeholder pension.
It calculates that a total of £29,026 is due to the clients, plus £200 for distress and inconvenience.
D M Cager managing director Martin Dubber says the commission was clearly explained to and accepted by the clients, and a fee option was also offered.
He says: “It is not the role of the ombudsman, several years later, to decide if the figure was too high.”
He also argues the redress calculation method is unfair as the stakeholder pension value used by the FOS has no charges applied to it.
Dubber says: “There is no such product as a nil charge stakeholder pension and, given the sums involved in the case, the difference between calculating with and without charges is significant.
“To say we are disappointed with the decision would be a gross understatement, but the cost of applying for a judicial review would be punitive for a firm of our size.”