Adviser network Online Partnership Limited has been ordered to compensate a former client who was advised to invest a large portion of his self-invested personal pension into two unregulated collective investments.
The Financial Ombudsman Service has upheld a complaint from Mr D that was made in response to unsuitable investment advice that he felt did not reflect his objectives and risk attitude.
In 2010, Mr D held pension plans worth more than £186,000 and he was advised by Online to transfer these into a Sipp.
A few months later, £80,000 was invested into two UCIS, and three months after that the same level of investment was made into the same two funds.
Mr D complained in 2016 that the investments hadn’t been made in line with his attitude to risk. Online agreed that investing in the UCIS was not suitable and calculated redress.
However, an adjudicator had decided that the redress offered was not adequate, and that the whole of the portfolio should be considered, with the 20 per cent invested in managed funds not offsetting the 80 per cent that was invested in UCIS.
The adjudicator also said Mr D should be compensated for five years’ Sipp fees, although Online subsequently said it was only prepared to pay three.
Online believes that both of the funds would be liquidated within three years and therefore was not prepared to pay for five years worth of fees.
Upon reviewing all the evidence, Ombudsman Doug Mansell came to the same conclusion as the adjudicator and upheld the complaint.
With an attitude to risk being recorded as three out of 10, Mansell says that “this indicates he was a cautious investor”, and the 80 per cent of his Sipp that was invested into “high-risk funds” did not fit his investment profile.
Mansell adds that the other 20 per cent of his Sipp, which was put into a managed fund, “didn’t play a sufficient part to significantly mitigate the risk to Mr D’s pension posed by the UCIS investments”.
Regarding compensation, the FOS aims to put Mr D in as close a position as possible to where he would be without the unsuitable advice.
In order to do this, Online must work out what the investment would have been worth at the date of the FOS decision. Mansell describes this as the fair value.
The FOS requires Online to compare the performance of the investment with a benchmark which, for half of the investment, uses the FTSE UK Private Investors Income Total Return index, and for the other half, the average rate from fixed rate bonds.
Mansell says: “[The index] would be a fair measure for someone who was prepared to take some risk to get a higher return.”
He adds: “The average rate for the fixed rate bonds would be a fair measure for someone who wanted to achieve a reasonable return without risk to his capital.”
Mansell views this benchmark as a “reasonable compromise” that “broadly reflects the sort of return Mr D could have obtained from investments suited to his objective and risk attitude”.
Online is also required to pay 8 per cent additional interest per year from the date of the decision to the date of settlement.
The FOS has instructed Online to pay Mr D the difference between the fair value and the actual value of his investment, up to a maximum of £150,000 plus interest.