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FOS rules against adviser over pension transfer to access DFM

Money-Coins-Pound-Currency-Close-up-700x450.jpgThe Financial Ombudsman Service has told an adviser to compensate a client who transferred their pension to access a discretionary fund manager when they did not need to.

In the case, Mr J complains Curo Advisers told him to transfer to a new pension plan to access services from a DFM but then found out a similar service was available with his previous plan.

He argues there was no need to transfer and reduce his pension by the £4,995 fee charged.

Curo rejected the complaint by Mr J and says the full discretionary fund management service was not available under his existing plan, only via a managed portfolio service.

When Mr J referred his compliant to FOS he indicated the portfolio options were very similar to those offered by his existing plan via the same discretionary fund manager, which he could have accessed and not paid a fee.

The adjudicator established from the previous pension provider that it did offer access to fund managers via model portfolios although not a full bespoke discretionary fund management service.

However these model portfolios were not explained adequately to Mr J who could have accessed them at an extra cost of 0.3 per cent per annum without the need to transfer.

The adjudicator says Mr J would have chosen the lower cost option had it been explained and compensation should be based on a return of additional costs.

However the adjudicator also notes Curo was not responsible for the investment decisions made by the discretionary fund managers.

In her response ombudsman Lesley Stead explains the reasons for siding with the adjudicator.

She says: “Essentially I don’t think the transfer was necessary. Mr J’s objectives could have been met under his existing pension plan. And, broadly, I agree with the redress suggested by the adjudicator. Curo wasn’t responsible for investment decisions after Mr J had transferred.

“So I think basing redress on the extra fees and charges Mr J incurred is a fair and reasonable way of compensating him. It puts him back in the position he’d have been in if he’d kept his existing pension plan. Curo should refund in part at least the fee it charged Mr J.”

To compensate, Curo should return any setting up costs of the new plan and the difference in the charges between the new plan and the previous plan up to the date Mr J changed advisers.

Furthermore interest at 8 per cent per annum should be added from the date of each deduction from the new plan to the date of payment.

Finally Curo should return £2,785 of the fee plus interest at 8 per cent per annum from the date the fee was deducted from the pension plan to date of payment.

A similar case handled by FOS also concerns a complaint from Mr G who complained about advice given by Curo to transfer to a new pension plan to access discretionary fund managers.

Mr G found out that a similar service was available with his previous plan and argues he doesn’t think he needed to transfer and reduce his pension fund by the £3,785 fee charged.

Here FOS ruled Curo should compensate Mr G along the same lines as they compensate Mr J.


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. I do not know the circumstances, but the FCA template for pension transfers indicates that if the current plan can do the same job as the intended plan, there is no case for transfer. Once platforms become the norm there will be little opportunity to switch legacy products, and firms will have to change their business models from policy switching to financial planning.

    Many years ago Ned Cazalet did a survey, and found that most new business was in fact the same money going round and round, clearly not sustainable and of little benefit to clients or the insurance companies who were paying out huge amounts of initial commission.

    • Agreed.
      We’ve moved on occassions from one Platform we reccomended to another one we consider better able to do what it said on the tin. Where we’ve done that, we’ve often done it at nil charge as we’ve been as fed up with the previous provider as the client.
      Moving old plans which don’t enable FAD to plans which do is a different issue, but any swtiching of providers, if thre is no financial benefit to the CLIENT you are on a hiding to nothing when it gets to the FOS and rightly so.
      |It’s not all about cheapest, but there has to be a benefit for the client that outweighs the cost of any transfer fee deducted for admin or advice changes.
      Moving a singled charged PPP or stakeholder needs a good reason.

  2. i think you will find Geoff that most new business today remains money going round and round according to some insurance providers no new money in the system

    • Not my experience, I have to say. I do hardly any transfers other than from old Skandia/Old Mutual PP5’s and 6’s to their current Collective Retirement Account and I don’t charge for them either.

  3. Still too many advisers lining their own pockets by playing the money go round. Used to be called churning.

    If you read the actual FOS report, the adjudicator reduced the amount the adviser could charge from £3,785 to £1,000.

    How did they come up with £1,000 for a fund switch, still seems a bit rich to me.

  4. Sorry, pension transfer or switch?

    Whilst I FULL support the comments about CHURNING. Please remember we all run our own businesses, have preferred offerings, platforms, providers and DFM’s,

    The trap we all fall in to is not stating what we actually mean, that if you want me to be your adviser, this is what we recommend and require you the client to undertake.

    I hate clients being disadvantaged, but also respect a FACT that as an adviser I also cannot work with some providers. We all have companies we will not work with, their poor services reflect on us. The cost to the client? How much do you want that client?

    • Martin – You need to read the two FOS decisions upheld against this frim which were exactly the same. The FOS didn’t order a complete refund, they ordered a refund of what one might have seen as the extra cost of changing provider for the beenfit of the firm ratehr than the benefit of the consumer.
      As Justin goes on to explain, tehre are many of us who either can’t or will not work with certain firms, it doesn’t stop us being Independent and one way of addressing that is waiving fees related to change of provider where it is purely for admin purposes.
      A prime example would be Hargreaves Lansdowne, where there offerring to direct consumers is very good, but as they don’t provide the same access to intermediaries supporting the client, it’s simply inappropriate a client remaining with HL where we as advisers are concerned as there are cheaper and mroe efficient providers who we can access as well as the consumer.
      The reason the FOS upheld these cases is because the fee they charged shoudl really have bene broken down in to different sections giving the client the choice. The transfer could quiet likely still have gone ahead and goen ahead with similar (I think they were excessive) fees if they have been for different elemenst of the work.

  5. That’s it Martin, you justify churning your clients investments because you cant work with certian providers!

    “We all run our own businesses, have preferred offerings, platforms, providers…..’ There is nothing like being truly independent, and this is nothing like it.

    How about doing it at no cost to the client if it doesn’t suit your business model?

    Alternatively, if the existing investments do the job, but you dont like the provider, then don’t take the client on.

  6. Technically its a pension switch.

    Given the controversy around pension transfers, Money Marketing can be more accurate with its headlines to avoid more IFA mud slinging?

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