Upheld: Pension transfer advice complaint against JM Independent Financial Advisers Ltd
Financial Ombudsman decision DRN-4430220 of 2024-03-28T00:00:00+00:00. Pension transfer advice complaint against JM Independent Financial Advisers Ltd. Outcome: Upheld.
Decision detail
| Reference | DRN-4430220 |
|---|---|
| Decision date | 2024-03-28T00:00:00+00:00 |
| Firm | JM Independent Financial Advisers Ltd |
| Product | Pension |
| Claim type | Pension transfer advice |
| Outcome | Upheld |
| Remedy | JM IFA must calculate compensation by: (1) obtaining a notional value of Mr K's pension from the previous provider as if he had not transferred, as at 10 August 2023; (2) comparing this to the actual transfer value on that date; (3) if the notional value is higher, paying the difference as compensation; (4) revaluing any loss in line with the original fund's performance from 10 August 2023 to the date of decision; (5) adding 8% simple interest from the date of decision to settlement if not paid within 42 days; (6) paying compensation into the pension plan if possible (allowing for charges and tax relief), or as a lump sum with a 15% notional tax reduction if not; (7) paying £300 for distress and inconvenience. |
Summary
Mr K complained about advice given by JM IFA in late 2021 to transfer his personal pension (valued at approximately £428,000) from a traditional personal pension to a SIPP with a new portfolio of funds. Mr K had a moderate attitude to risk (3/5), and his original fund had a risk rating of 2/5 with a balanced asset allocation (48% equities, 21% fixed interest, 14% property, and other assets). The new portfolio recommended by JM IFA had approximately 80% equity content with predominantly above-average and higher-risk funds (risk score 77/100 versus 49/100 for the original fund), and charges increased from 1.75% to 2.06%. The ombudsman upheld the complaint, finding that the recommended portfolio presented a greater degree of risk than Mr K had agreed to accept, and ordered JM IFA to pay compensation calculated by comparing the notional value of the original fund to the actual pension value, plus £300 for distress and inconvenience.
The Ombudsman's reasoning
The ombudsman concluded that the suitability of the advice was the key issue. While acknowledging that portfolio construction is not an exact science and that different advisers may have different methods, the ombudsman found that the recommended portfolio presented a materially greater degree of risk than Mr K's moderate attitude to risk warranted. The equity weighting of approximately 80% (or 75-90% depending on how it was measured) was significantly above the allocations used in standard benchmarks for moderate risk investors. Additionally, the individual funds recommended were largely above-average or higher-risk funds. Although the ombudsman accepted that the recommended funds provided some diversification and acknowledged JM IFA's analytics system approach, this was insufficient to mitigate the overall risk profile. The ombudsman rejected JM IFA's arguments about the smoothing effect of the original fund and the benefits of active management over time, focusing instead on whether the original advice was suitable. The ombudsman also rejected the suggestion that redress should be calculated based on a hypothetical 50% transfer, as JM IFA had a professional responsibility to provide suitable advice regardless of the clients' preferences.
How this compares
| Group | Decisions | Uphold rate |
|---|---|---|
| JM Independent Financial Advisers Ltd, all decisions | 4 | 25% |
| Pension transfer advice, all decisions | 7,542 | 54% |
| Pension, all decisions | 15,409 | 47% |
Source
Read the original decision on the Financial Ombudsman Service website