FOS orders IFA to pay multiple clients over unsuitable pension transfer advice

The Financial Ombudsman Service has told BlackStar Wealth Management to compensate five different clients for the unsuitable advice it gave them to transfer out of their pension schemes.

Five upheld rulings against the West Midlands-based firm have been published since the start of the year.

All the clients were advised to transfer out of their defined benefit or personal pension schemes into a Sipp where they were then exposed to investments found to be too high risk.

In three cases Mr L, Mr H and Mr C all transferred their money into unregulated investments referred to as Colonial Capital/Colonial Capital Corporate Bonds.

The ombudsman rulings note all of these investors were not sophisticated and put into assets that were not appropriate for their level of experience.

Mr L complains about the advice he received from BlackStar to switch two personal pensions to a Sipp where the majority of the funds were then invested in two specialised and high-risk investments.

He took advice in 2014 and then transferred around £50,000 in total to a Sipp that was his only private pension.

BlackStar assessed Mr L’s approach to investment risk as “medium”. He had over 15 years until his likely retirement at age 60. Around 90 per cent of Mr L’s transferred pension was invested in Colonial Capital and another firm called Dolphin Capital.

Dolphin Capital was an established German company investing in the refurbishment of listed buildings in Germany for residential use.

Colonial Capital was a new start-up with limited track record, the FOS noted. It invested in distressed residential property which had been foreclosed in Chicago, USA.

The investments BlackStar recommended were loans to the two companies with projected returns of 12 to 13 per cent per annum.

The FOS ruling shows that in March 2017, Mr L was informed that Colonial Capital had been placed in receivership and so he had lost his investment.

BlackStar sought to justify its advice based on Mr L’s agreement to his classification as an experienced investor.

In another case, Mr H says he was recommended to transfer two personal pensions he held to a Sipp to make an investment in unregulated bonds.

BlackStar recommended that he transfer the personal pensions, which were valued at around £26,000, into a Sipp and then invest in Colonial Capital bonds. The personal pensions represented about 10 per cent of his overall pension provision.

A FOS adjudicator ruled it exposed Mr H’s pension to a higher level of risk than he was prepared to accept.

The adjudicator notes there were significant penalties and fees on transfer amounting to approximately 16 per cent of the personal pensions.

BlackStar argued Mr H was an experienced investor and his attitude to risk was assessed correctly.

Mr C also transferred his existing pension benefits to invest through a Sipp into the two entities, Colonial Capital Corporate Bonds and Dolphin Capital GmbH.

He was introduced to BlackStar by a third-party introducer and was advised in relation to four pension plans he held.

This included deferred benefits in a defined benefit scheme with a former employer. The fund value was just over £90,000 with a guaranteed final salary of around £8,000.

The three other funds had a combined value of around £90,000 but without any guaranteed final salary.

Part of the advice was to transfer away from his final salary pension scheme and give up the guaranteed benefits.

FOS noted that the transfer analysis said that this fund would provide a guaranteed pension of around £8,000 at 65 or 66.

The return required to match this with the transfer value was over 11 per cent.

Once the transfer was complete the advice was to place around £60,000 into unregulated investments, which was too high, according to the adjudicator.

Colonial Capital went into administration in 2017 and the investment was lost.

BlackStar argued Mr C’s objectives could not be met by remaining in the existing schemes and specific risk warnings were given.

The cost of the claims

The two other rulings concern Mr W and Ms J, whose cases are a little different from the three above.

Mr W was in his early fifties and had accrued benefits in his occupational pension scheme that provided for a transfer value of over £300,000.

BlackStar recommended that he transfer the funds into a Sipp that would  allow access to his benefits at 55, which was noted as an objective the client had.

It also gave him control over the funds, which was consistent with his wish to make provision for his daughter.

Mr W was assessed as having a “medium-high” attitude to risk and a transfer analysis prepared at the time noted that the critical yield required to match the benefits of the occupational scheme was 13.85 per cent.

Once the Sipp was arranged and the transfer took place another business was appointed as a discretionary fund manager.

This second business recommended the specific investment portfolio for Mr W who suffered losses as the portfolio included assets that have performed poorly and some that have failed. The recommended portfolio did not match his attitude to risk, FOS ruled.

The adjudicator says BlackStar should compensate for the losses that flowed from the transfer to the Sipp, but not the losses that arose out of the portfolio.

The investment portfolio was recommended by the discretionary fund manager and so it was responsible for the portfolio losses.

BlackStar did not agree and argued Mr W wanted to access the benefits at 55 which he could not do without transferring out of the occupational scheme.

Regarding Ms J, she complained about the advice to transfer the funds from her personal pension plan with provider A to a Sipp with provider B.

BlackStar wrote to her in August 2012 noting that she wished to use her pension to purchase an overseas property via an agent of a property developer.

It said that she had only requested its advice to find a suitable Sipp to facilitate the purchase as her existing pension arrangements would not allow this.

The ombudsman says BlackStar should not have recommended the Sipp transfer as it was premature and the intended investment was unregulated.

In all the cases the ombudsman told BlackStar to pay money back to these clients according to the calculations it outlined.

A spokesperson for BlackStar was not available for comment at the time of publication.

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Justin Cash, Editor of Money Marketing
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Comments

There are 16 comments at the moment, we would love to hear your opinion too.

  1. What’s the betting that Blackstar’s PII doesn’t cover unregulated investments? Assuming it doesn’t, that’s another tranche of liabilities that’ll be borne by the rest of us by way of the FSCS.

    Now ~ why didn’t the FCA stipulate that all firms must hold PII cover relevant to all products on which they advise?

  2. Same old news. Small, directly regulated practice with no meaningful oversight, pension transfers, unregulated introducers, UCIS.

    Do the FCA actually check GABRIEL reports?

    • I presume your question is rhetorical, yet so much of what the FCA needs to know about the activities of small DA practices it could, were it so inclined, find out from its GABRIEL system. It need not even be a hugely resource hungry exercise either. Auto-flag ups of any affirmative answers to questions on UCIS, high volumes of DB transfers and pension switching, Income DrawDown with virtually no annuities and so on. A few selected ARROW visits ~ hey, whatever am I fantasising about? All this sounds like proportionate and appropriately targeted regulation and we all know the FCA has a resoundingly Foxtrot Oscar attitude towards THAT. Sorry, it’s Friday afternoon, I don’t know what came over me.

    • No, they don’t – they confirmed that in writing when I queried another claim.

  3. As JS states, the worry for those that fund FSCS will be the firm now folds. The only assets listed in the 2017 accounts are loans repayable by Mr Humphries himself.
    The pattern for many firms declared in default by FSCS is the same – several complaints upheld at FOS, followed by liquidation.
    The issue is compounded by the length of time it takes FOS to deal with these complaints, several years in some cases, during which time the regulated firm continues to provide more potentially unsuitable advice.

  4. These supposed IFA’s who seem to invest client’s money in any Micky Mouse scam going really do tarnish the rest of us. They drive our PI cover up, they drive or FSCS levy up they really are scum which we need out of our industry.

  5. Is this bad advisers or bad regulation?

    Given the fortune that the industry donates to the FCA each and every year is it too much to expect that they can sift out this type of adviser before it becomes a fiasco?

    Many believe that the Govt/Treasury/FCA do not give a toss because the sufferers will be compensated by the mugs who do the job properly.

    This indicates that the compensation system is working fine, right?

  6. Dolphin… **shudders**
    Great returns but aye caramba…

  7. Great news for victims like me who have been mugged by so-called ‘independent financial advisers’. Common justice and fairness demands that they receive 100% compensation.

    • You do have my sincere sympathy, though there are crooks and cowboys in any industry. The real failing is on the part of the body whose statutory responsibilities are to identify, home in on and take action against those in ours.

      Under threat of confiscation of livelihoods, the FCA demands the submission of all manner of data on firms’ activities, with which it then does nothing. As a result, people like you get shafted, the perpetrators fold their businesses (because the regulator hasn’t bothered to mandate adequate PII) and dump their liabilities on the rest of us by way of the FSCS. So we see yet another stain on the reputations of the majority of practitioners who’ve never mis-advised anyone and additional FSCS levies.

      Worst of all, this has been going on for decades but STILL nobody at the FCA is ever held to account. Sure, there’s a bit of frowning, tut-tutting and finger wagging, the FCA claims to have learned lessons and that it’ll do better in the future but, when all is said and done, it just carries on as before. The only person who ever took a fall was Clive Briault for his failure to fulfil his responsibilities towards Northern Rock and look what he got ~ a golden parachute worth £612,000, all of it other people’s money. It really is a national disgrace.

      Why, we have asked so many times, does the government not grant a body such as the TSC the unassailable authority it clearly needs to direct the FCA as to what it shall and shall not prioritise (because clearly it cannot be trusted to do this without external supervision), with meaningful powers of sanction, against individuals, non-compliance? The whole set up is wrong.

    • Absolutely agree Barney, they should be compensated. But I am sure you will agree, not compensated by someone who had absolutely nothing to do with the “mugging”How wrong would that be?

      • That’s a bit like suggesting that drivers who’ve never claimed on their motor insurance should only have to pay premiums every year of £20. Where would that leave the poor pedestrian who suffers life changing injuries at the hands of a reckless driver?

        The principal of the FSCS, like any other central insurance pool, is that the many pay for the sins of the few, and with that I have no beef. What has gone catastrophically wrong is that the regulator has failed to regulate, and indeed continues to do so. As a result, our industry’s central insurance pool, the FSCS, has become subject to ever increasing demands on its resources, i.e. levies on the good guys, that simply weren’t nor could have been anticipated when it was first set up. Nobody envisaged:-

        1. just how incompetent and negligent the regulator would turn out to be,

        2. how unaccountable it would be for that incompetence,

        3. how contemptuous it would be towards anyone who suggests that it needs to get its house in order and completely re-think its priorities or

        4. the extent to which the industry’s rogue core would take advantage of that incompetence.

        Even worse, it’s not much of a hurdle for the rogues to secure re-authorisation from the FCA because it [the FCA] claims that preventing phoenixing is a bit too difficult for it to handle.

        • Julian that is such a poor analogy. FSCS is absolutely not comparable to any conventional “insurance pool”.

          Most insurance (apart from motor) is voluntary not compulsory. There is no underwriting process taking place as to FSCS risk and certainly there are no exclusions,all poor regulated advice is compensated where the firm fails. There are no excesses and no choice as to the level of cover a particular firm can apply for. And there is no competition for that cover either!!

          Grey Area is asking the right question question below. perhaps Barney might answer it?

    • Barney, who do you think should pay when it comes to common justice and fairness?

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