Another FOS victory against BlackStar for TLW Client

After Mr M was referred to BlackStar in late 2014, they carried out a fact find, which revealed that he was in his late 50s, working and separated.  His health was reasonably good, he had a substantial mortgage, no investments and around £2000 in savings. He was a member of a defined benefit (DB) pension scheme – also known as a final salary pension scheme.  Mr M’s attitude to risk was moderate and he simply wanted a “decent pension” upon retirement and to take a 25% tax-free lump sum immediately.

BlackStar recommended Mr M transfer out of his DB pension into a Self-Invested Personal Pension (SIPP), stating the main priority was to leave death benefits to his dependants through the scheme.  The funds selected for him were Colonial Capital Corporate Bonds and Dolphin Capital GmbH.  Further analysis revealed that these investments would have to yield over 8% if Mr M were to retire at 65 and have a pension fund of similar value to the one he was transferring out of.

A suitability report prepared by BlackStar highlighted that these were high-risk funds and that any yield over 6% was also considered high risk. Despite this, Mr M was advised to proceed with the transfer of almost £80,000 from his final salary scheme.  Mr M took a cash sum of £20,000 and the remainder was invested.

In early 2016, Mr M learned that the Dolphin investment had not been made, due to a “tightening of criteria by the industry regulator”, meaning the investment was no longer deemed suitable for him. That money was invested in other funds. Mr M also learned that Colonial Capital had entered administration.  He complained to BlackStar about the advice he had received, however, the claim was rejected in May 2016.

Mr M, with our help, contacted the FOS for independent adjudication.

The FOS adjudicator noted that Mr M was in his late 50s, had one pension, and very limited time to recover any financial losses before retirement age. She reinforced the view that high-risk investments were unsuitable for Mr M’s moderate attitude to risk. The adjudicator noted that Mr M’s final salary scheme would have provided largely guaranteed benefits, i.e. a defined income upon retirement, rather than being dependant on investment return and future annuity rates. And finally, there was no evidence to explain why Mr M needed to take a £20,000 lump sum, rather than continue to invest it.

BlackStar disagreed with these findings and said that Mr M’s retirement income would be met by the State Pension and that he had wanted to access the cash from his pension fund now. Further, they said that Mr M had identified the possibility of his pension failing and this was within his attitude to risk.

It fell upon the Financial Ombudsman, Keith Taylor, to make the final decision.

The Ombudsman upheld Mr M’s complaint. Regardless of how or why Mr M was referred to BlackStar, they had a responsibility to give him financial advice that was suitable for his needs and to act in his best interest.

He should never have been advised to transfer out of a Defined Benefits pension scheme so close to retirement age.  Had Mr M continued with his final salary pension scheme, he would have had a guaranteed income and would have been able to make some provisions for his family.

Mr Taylor commented:

“The suitability report confirmed that Mr M was highly likely to be worse off in retirement if he transferred yet it recommended that he should go ahead with the transfer… I’m not satisfied that the recommendation to transfer was suitable or in Mr M’s best interest.”

Transferring out of a final salary pension scheme should not be considered lightly.  A good financial adviser will look at individual investment strategies that work for each client. BlackStar failed Mr M by allowing him to invest in unregulated, high-risk funds.

BlackStar has been ordered to carry out a redress calculation and to compensate Mr M for any money he lost due to the pension transfer. The aim is to put Mr M back in the financial position he would have been in, had he not taken BlackStar’s advice to transfer and includes any loss in pension value, any fees paid to the SIPP provider, missed tax relief, the cost of transferring to more suitable pension investment, plus any backdated interest.

Peter McKenna of TLW Solicitors said:

“Mr M is delighted with the Ombudsman’s ruling that he was given unsuitable advice by Blackstar.  He will now be properly compensated for the losses suffered as a result of that unsuitable advice.”