Portafina has come under fire from the Financial Ombudsman Service (FOS) after it advised a cautious factory worker to transfer 85% his pension into four unregulated collective investment schemes (UCIS).
In 2011, Mr O took advice from Portafina about his pension. He was advised to transfer his rebate-only personal pension to a self-invested personal pension (SIPP). Most of the funds were then invested into unregulated collective investment schemes (UCIS) that Portafina recommended.
Mr O complained about the advice, saying that he wanted "low to no" risk, but was placed into high-risk investments.
Portafina, previously known as Portal Financial, did not uphold the complaint; it said its advice to invest 85% of the SIPP funds into UCIS was reasonable as it had carried out extensive due diligence on the funds and they were likely to provide a return to Mr O.
A first adjudicator upheld the complaint, pointing out Mr O was a factory worker earning a modest income and had very limited pension rights. However, Portafina disagreed, adding Mr O had the benefits of another pension from a former employer.
As no decision could be reached, the case was passed to ombudsman Keith Taylor, who agreed with the first investigator and upheld the complaint.
Taylor said investing 85% of Mr O's fund into UCIS was inappropriate for him as the funds were all speculative and involved investing in very specialised areas. Taylor said Mr O was not a sophisticated investor, and as such, should not have been advised to invest into UCIS.
He added UCIS are generally regarded as being characterised by a high degree of volatility, illiquidity or both, and as such should be regarded as speculative investments that are rarely suitable for more than a small share of an investor's portfolio.
'The advice was unsuitable'
"I think all four UCIS recommended presented significant risks to capital. I think they were too risky for Mr O and the proportion of his pension invested in UCIS was too high. The advice was unsuitable for him," said Taylor.
"I am not satisfied that there was anything in Mr O's circumstances in 2011 that should have led Portafina to reasonably believe he was a suitable consumer for this type of investment," he continued, "he was a factory workers with a modest income. His investment experience appears to have been limited to investment bonds. He was within a few years, ten at most, of his likely retirement and I can't see that this was the right time to expose his pension to increased risk."
Taylor also said Mr O's attitude to risk was recorded as being ‘moderately cautious', and as such his attitude was incompatible with his investing such a large portion of his pension into UCIS.
"I think that a reasonably competent adviser would have concluded that UCIS funds were unsuitable for Mr O," he added.
Taylor said Portafina should pay out £500 in compensation for the distress and inconvenience caused, as Mr O had seen some of the investments become illiquid and potentially reduce to nil value.
Taylor also said Portafina should put Mr O back to as close a position he would be now if he had not been given unsuitable advice.
It should do this by comparing the performance of Mr O's investment with that of a benchmark provided by the Ombudsman, and pay any losses to Mr O's pension plan or directly to him, if it is unable to do that, taking into account of any taxable income.
