An adviser must compensate a client for failing to monitor the performance of Sipp investments in two unregulated collective investment schemes.
A Financial Ombudsman Service decision says Welsh advice firm Sebastian & St James International Financial Advisers is responsible for the reduction in the client’s pension.
In October 2011 the client, Mr P, met an IFA and was advised to transfer his pension funds into a Sipp with Standard Life and enter into income drawdown.
As part of that initial advice, Mr P was advised to invest £20,000 in New Earth Solutions recycling fund and £20,000 in UK Secured Finance fund, both Ucis funds.
In January 2013, many clients moved from the original IFA to Sebastian, following its acquisition.
In 2016 Mr P’s representatives complained he invested more than £105,000 in the plan up to that date, but it was worth around £30,000.
Mr P’s representatives said the terms under which Sebastian took on Mr P as a client included a retainer to exercise reasonable duty and care of his funds.
In its response to FOS for information Sebastian said it was only a servicing agent, the plan had not been written by it and so the complaint should not be upheld.
The FOS adjudicator felt Mr P’s complaint should be upheld as it was clear Sebastian was not just a servicing agent for Mr P’s Sipp as Standard Life provided evidence Sebastian gave Mr P advice from at least August 2015.
The original IFA was taking 1 per cent trail commission while the advice letter from the original IFA said that an annual review would be offered.
The letter transferring Mr P from the original IFA to Sebastian said the existing commission terms would be maintained and there would be an ongoing service in exchange for the payment of commission.
The adjudicator added Sebastian would have become aware that Mr P had significant holdings in Ucis funds if it had done the review and should have advised him to switch out of them.
Sebastian did not agree with the adjudicator’s view and argued the advice to invest in the Ucis was given by the original IFA and it could not be held liable for the advice.
In the final decision, ombudsman Alison Cribbs agrees Sebastian was not responsible for the initial advice but should have carried out a review of the client’s investments following the takeover of the business.
It should have advised him to transfer out of the Ucis and is liable for what went wrong with his investments.
Cribb refers to the letter from Sebastian to Standard Life as at January 2013 that says: “Please accept this letter as confirmation that Sebastian & St James International Advisors will firstly accept liability for any outstanding indemnity commission, the clients have been informed of the transfer of servicing company and that the existing commission terms are to be transferred and there will be an ongoing service in exchange for the payment of commission.”
Furthermore the original suitability report provided to Mr P in 2011 recorded his attitude to risk as medium/balanced and Ucis are generally high risk investments.
Therefore if Sebastian had carried out a review of Mr P’s pension in early 2013, it should have advised him that those investments were not suitable for him, and advised him to transfer out.
Sebastian should pay Mr P compensation based on the comparative performance of each of Mr P’s investments against the FTSE UK Private Investors Income Total Return Index benchmark.
It should also pay Mr P £400 for his trouble and upset.
Sebastian declined to comment.