Mario asked our service to look into advice he received from a regulated independent financial adviser to switch his personal pension plan to a self-invested personal pension (SIPP). This was partly used to invest in an unregulated collective investment scheme (UCIS). Mario feels the UCIS was an unsuitable investment and so transferring wasn’t in his best interests.
What happened
Mario asked our service to look into advice he received from a regulated independent financial adviser to switch his personal pension plan to a self-invested personal pension (SIPP). The SIPP was partly used to invest in an unregulated collective investment scheme (UCIS). Mario feels the UCIS was an unsuitable investment and so transferring wasn’t in his best interests.
A ‘fact find’ was completed as part of the advice process. This recorded that Mario wanted to choose for himself where to invest £60,000 of his pension savings, leaving around £35,000 to be invested in funds recommended by his adviser.
When recommending the pension switch, the adviser noted Mario had a keen interest in shares and speculative investments and said a SIPP would give him the opportunity to invest within his areas of interest.
Mario accepted the advice and switched his pension. He then invested £60,000 into an oil and gas UCIS. The remaining amount was invested into funds selected by the adviser.
The adviser didn’t agree with Mario’s complaint because he said he didn’t advise Mario to invest in the oil and gas UCIS. He said Mario was intent on making this investment and would have followed this course of action regardless.
What we said
The Financial Conduct Authority (FCA) has made it clear that an adviser needs to consider the proposed underlying investments when advising on a pension switch to be able to determine the suitability of the transaction overall. It wasn’t possible for the adviser to assess the suitability of a SIPP for Mario without considering how Mario intended to use the SIPP.
The adviser was aware Mario was looking to invest a large part of his pension savings – potentially more than 60% – into speculative investments. This turned out to be an oil and gas UCIS, which was unregulated and presented significant risks usually only suited to high net worth or sophisticated investors. Even where such investments are suitable, the FCA has stated they should only make up three to five percent of an overall portfolio.
Even if the adviser didn’t know exactly how Mario intended to invest, it appeared the primary reason for recommending the SIPP was to facilitate Mario’s desire to invest in speculative investments. So the adviser should have done more to understand Mario’s circumstances, investment experience and objectives before recommending he switch his personal pension plan to a SIPP.
The adviser failed to do this, so we concluded the adviser did not act fairly or reasonably when providing advice to Mario. We didn’t think Mario’s circumstances and investment experience indicated that using a SIPP to invest a large portion of his pension savings in high-risk, speculative investments was suitable for him. We decided that suitable advice would have been for Mario to keep his existing personal pension plan. If Mario had been suitably advised, we thought he would have followed that advice, as we had not seen evidence to indicate Mario was so strongly motivated to make the transaction that he would have proceeded against expert advice.
To put things right, we recommended the adviser carry out a redress calculation to put Mario as closely as possible into the position he would be in if he had remained in his personal pension plan and not switched to a SIPP. We told the adviser to compare the value of Mario’s existing SIPP funds with the hypothetical value his original personal pension plan would have achieved by now if he had not switched away from it. We also said the adviser should pay Mario £250 compensation to acknowledge the inconvenience caused to his retirement planning.