Petra lost money after switching to a self-invested personal pension (SIPP) and investing in an unregulated collective investment scheme.
What happened
Petra was inexperienced investor whose appetite for risk was low. Her financial adviser suggested that she transfer her personal pension plan into a SIPP and invest in an unregulated collective investment scheme (UCIS).
These are high-risk investments typically unsuitable for inexperienced investors. The investments failed, and she lost a lot of her pension savings.
That made Petra think about the risk she had taken. She thought perhaps the UCIS had been too risky for her and her adviser shouldn’t have recommended it.
But her financial adviser defended its recommendation, saying Petra wanted access to tax-free cash from her personal pension plan, which required a transfer.
The financial adviser acknowledged Petra’s argument that the investments were unsuitable and it had not offered alternative options.
Unhappy with this response, Petra brought her complaint to us.
What we said
UCIS are specialist, high-risk investments that aren’t usually suitable for for the general public, apart from experienced or high net worth investors. Even for suitable investors, the industry regulator has suggested limiting UCIS to three to five per cent of the investment portfolio as best practice.
Petra wasn’t an experienced or high-net-worth investor. Her attitude to risk was cautious and she didn’t have a very big pension pot for her retirement.
Despite this, 90% of her funds were invested in UCIS. We thought the UCIS investments exposed her retirement savings to more risk than she could afford or wanted to take. The financial adviser hadn’t told her about any other options apart from the SIPP.
Taking everything into account, we concluded the recommendation was unsuitable. We upheld Petra’s complaint. We told the financial adviser to put her as closely as possible into the position she would have been in were it not for the advice.
We instructed the financial adviser to carry out a redress calculation. However, we couldn’t say how Petra would have invested had she been given other advice. So, we asked the firm to use a standard based on an investment strategy that matched her ‘low risk tolerance’.