An advice firm has been blocked from challenging a number of decisions made by the Financial Ombudsman Service (FOS) in relation to pension transfers.
Portal Financial Services, formerly Portafina, took the FOS to the high court arguing that it was not partially responsible for client losses after they were advised to invest a portion of their pension pots in high-risk, unregulated collective investment schemes (Ucis).
On 28 March 2022, justice Sweeting rejected Portal’s grounds for a challenge.
Portal is regulated by the Financial Conduct Authority (FCA) and had permissions to advise on pensions transfers and opt-outs.
Clients were introduced to Portal by a third-party advisory firm, Cherish Wealth Management, which was the appointed representative of Shah Wealth Management, a financial advisory firm authorised by the FCA but which did not have permissions to advise on pension transfers.
Cherish clients were referred to Portal to determine their suitability to transfer their existing pension arrangements under one or more occupational or personal pension schemes into a self-invested personal pension (Sipp).
Portal’s pension transfer advice was sent to clients as a written ‘suitability report’. Cherish provided further advice on the investments to be held in the Sipp wrapper to all but one of the clients involved, the high court said.
Without Portal’s knowledge, they were advised to invest a portion of their pension pot in high-risk Ucis and have suffered losses as a result.
Both Shah and Cherish commenced winding up on 5 July 2016. Clients made complaints to the FOS in relation to the transfer advice given by Portal.
In summary, the FOS found against Portal on the grounds that:
- It was not entitled to “divorce” the advice on the suitability of the pension transfer from considering the suitability of the underlying investments – or to rely on Cherish doing so;
- It failed in its primary duty to properly advise on the suitability of the transfer; and
- Although, Cherish “may also have separately caused” some of the client’s losses, Portal should nonetheless be responsible for 100% of the loss.
Portal claimed that the FOS acted “irrationally” in concluding the FCA, then the Financial Services Authority, circulars sent around in 2013 and 2014 represented “good industry practice” and the Ombudsman did not use the context of Portal’s case in the decisions.
The circular stated: “Where a financial adviser recommends a Sipp knowing that the customer will transfer or switch from a current pension arrangement to release funds to invest through a Sipp, then the suitability of the underlying investment must form part of the advice given to the customer.
“If the underlying investment is not suitable for the customer, then the overall advice is not suitable. If a firm does not fully understand the underlying investment proposition intended to be held within a Sipp, then it should not offer advice on the pension transfer or switch at all as it will not be able to assess suitability of the transaction as a whole.”
Portal also claimed that the Ombudsman failed to take into account the “reasonable assumptions” that the firm was entitled to make under the FCA handbook. It states that advisers should “compare the benefits likely (on reasonable assumptions) to be paid on a defined benefits pension scheme with the benefits afforded by a personal pension scheme […] before it advises a retail client to transfer out of a defined benefits pension scheme”.
The firm also challenged the conclusion it should be 100% liable for the losses.
In one of the FOS judgments, the Ombudsman said that it was “important to point out” that Portal is not “wholly responsible for the losses simply because [Shah] and [Cherish] are now in liquidation”.
But added that Portal “gave unsuitable advice and it is responsible for the losses” that the client suffered in transferring to the Sipp and investing.
“That isn’t, to my mind, wrong in law or irrational but reflects the facts of the case and my view of the fair and reasonable position,” the judgment said. “[Portal] could’ve (sic) prevented the transfer and the investments. Instead, it facilitated them, having given unsuitable advice to [the client] that he should transfer.”
The Ombudsman also said that, as the client complained about Portal, it is “fair and reasonable” that the firm “should account to him for the full extent of his losses”.
High court ruling
Justice Sweeting said on 28 March 2022: “The Ombudsman system is intended to provide an independent and informal complaint resolution procedure which avoids consumers having to resort to the courts.
“Ombudsmen have to reach decisions which are fair and reasonable in the circumstances. There is nothing to suggest that they did not do so here.”
He added that the “decisions of the ombudsmen were lawful, within their powers and not open to arguable challenge by way of judicial review. The applications for permission are refused”.
Portal Financial Services cancelled its regulatory permissions and stopped accepting new customers last year. According to the FCA register, the firm applied to cancel its permissions on 18 June 2021.
A statement on the firm’s website says: “Please note that Portal Financial Services LLP is no longer taking on any new clients.”
International Adviser has contacted Portal Financial Services for a comment, but it did not reply in time for publication.