The Financial Ombudsman Service has told BlackStar Wealth Management to compensate five different clients for the unsuitable advice it gave them to transfer out of their pension schemes.
Five upheld rulings against the West Midlands-based firm have been published since the start of the year.
All the clients were advised to transfer out of their defined benefit or personal pension schemes into a Sipp where they were then exposed to investments found to be too high risk.
The ombudsman rulings note all of these investors were not sophisticated and put into assets that were not appropriate for their level of experience.
Mr L complains about the advice he received from BlackStar to switch two personal pensions to a Sipp where the majority of the funds were then invested in two specialised and high-risk investments.
He took advice in 2014 and then transferred around £50,000 in total to a Sipp that was his only private pension.
BlackStar assessed Mr L’s approach to investment risk as “medium”. He had over 15 years until his likely retirement at age 60. Around 90 per cent of Mr L’s transferred pension was invested in Colonial Capital and another firm called Dolphin Capital.
Dolphin Capital was an established German company investing in the refurbishment of listed buildings in Germany for residential use.
Colonial Capital was a new start-up with limited track record, the FOS noted. It invested in distressed residential property which had been foreclosed in Chicago, USA.
The investments BlackStar recommended were loans to the two companies with projected returns of 12 to 13 per cent per annum.
The FOS ruling shows that in March 2017, Mr L was informed that Colonial Capital had been placed in receivership and so he had lost his investment.
BlackStar sought to justify its advice based on Mr L’s agreement to his classification as an experienced investor.
In another case, Mr H says he was recommended to transfer two personal pensions he held to a Sipp to make an investment in unregulated bonds.
BlackStar recommended that he transfer the personal pensions, which were valued at around £26,000, into a Sipp and then invest in Colonial Capital bonds. The personal pensions represented about 10 per cent of his overall pension provision.
A FOS adjudicator ruled it exposed Mr H’s pension to a higher level of risk than he was prepared to accept.
The adjudicator notes there were significant penalties and fees on transfer amounting to approximately 16 per cent of the personal pensions.
BlackStar argued Mr H was an experienced investor and his attitude to risk was assessed correctly.
Mr C also transferred his existing pension benefits to invest through a Sipp into the two entities, Colonial Capital Corporate Bonds and Dolphin Capital GmbH.
He was introduced to BlackStar by a third-party introducer and was advised in relation to four pension plans he held.
This included deferred benefits in a defined benefit scheme with a former employer. The fund value was just over £90,000 with a guaranteed final salary of around £8,000.
The three other funds had a combined value of around £90,000 but without any guaranteed final salary.
Part of the advice was to transfer away from his final salary pension scheme and give up the guaranteed benefits.
FOS noted that the transfer analysis said that this fund would provide a guaranteed pension of around £8,000 at 65 or 66.
The return required to match this with the transfer value was over 11 per cent.
Once the transfer was complete the advice was to place around £60,000 into unregulated investments, which was too high, according to the adjudicator.
Colonial Capital went into administration in 2017 and the investment was lost.
BlackStar argued Mr C’s objectives could not be met by remaining in the existing schemes and specific risk warnings were given.
The cost of the claims
Mr W was in his early fifties and had accrued benefits in his occupational pension scheme that provided for a transfer value of over £300,000.
BlackStar recommended that he transfer the funds into a Sipp that would allow access to his benefits at 55, which was noted as an objective the client had.
It also gave him control over the funds, which was consistent with his wish to make provision for his daughter.
Mr W was assessed as having a “medium-high” attitude to risk and a transfer analysis prepared at the time noted that the critical yield required to match the benefits of the occupational scheme was 13.85 per cent.
Once the Sipp was arranged and the transfer took place another business was appointed as a discretionary fund manager.
This second business recommended the specific investment portfolio for Mr W who suffered losses as the portfolio included assets that have performed poorly and some that have failed. The recommended portfolio did not match his attitude to risk, FOS ruled.
The adjudicator says BlackStar should compensate for the losses that flowed from the transfer to the Sipp, but not the losses that arose out of the portfolio.
The investment portfolio was recommended by the discretionary fund manager and so it was responsible for the portfolio losses.
BlackStar did not agree and argued Mr W wanted to access the benefits at 55 which he could not do without transferring out of the occupational scheme.
Regarding Ms J, she complained about the advice to transfer the funds from her personal pension plan with provider A to a Sipp with provider B.
BlackStar wrote to her in August 2012 noting that she wished to use her pension to purchase an overseas property via an agent of a property developer.
It said that she had only requested its advice to find a suitable Sipp to facilitate the purchase as her existing pension arrangements would not allow this.
The ombudsman says BlackStar should not have recommended the Sipp transfer as it was premature and the intended investment was unregulated.
In all the cases the ombudsman told BlackStar to pay money back to these clients according to the calculations it outlined.
A spokesperson for BlackStar was not available for comment at the time of publication.