The dangers of taking pension and investment advice from unregulated IFAs has been highlighted in complaints before ombudsman in Britain.
The problem directly impacts expats who transfer their retirement savings into a self-invested pension plan (SIPP).
The ombudsmen seem to have issued contradictory rulings in two cases and has indicated that the stance of SIPP providers having to check if pension investments are suitable for retirement savers is under review.
The most recent case is the pension ombudsman decision in the case of an anonymous ‘Mr N’.
N invested his SIPP in African land through a provider called Stadia.
Warnings ignored
The ombudsman revealed the company had warned N about the risk of his investment, but he took no heed and went ahead.
Later, when the investment failed, he argued to the ombudsman that Stadia had contributed to his loss by not carrying out detailed due diligence into his investment.
The ombudsman decided N had received warnings about his investment and also had the offer of an alternative investment portfolio, which he declined.
Stadia was cleared of blame. The ombudsman ruled that Stadia did not have to make a decision about whether the investment succeeded or failed but whether the investment was permitted under pension rules, which it was.
However, last year the financial ombudsman ruled that a retired shop manager should receive the maximum £150,000 compensation from provider Brooklands Trustees for transferring a £260,000 pension fund.
Unsuitable advice allegation
The manager complained he had lost money on investing in a failed property fund due to unsuitable advice.
Brooklands has appealed, claiming the provider had no responsibility to advise the member on his investments.
At the time, the ombudsman decided that if the provider had conducted adequate due diligence, the transfer into the failed fund would not have gone ahead.
In this case, the consumer had taken advice from an unregulated IFA in Cyprus and was referred to a UK IFA who claims never to have given investment or pension advice to him.
The accepted process for pension transfers is a SIPP or QROPS provider accepted funds on the recommendation of an IFA. Providers consider the IFA’s role absolves them from blame if the investment goes wrong.
The ombudsmen seem to be leaning towards making the provider’s more responsible for the money they hold for retirement savers by making them check on the suitability of investments.
