AFH Independent Financial Services Limited · DRN-6041519

The complaint Mrs B complains that AFH Independent Financial Services Limited (AFH) provided her with unsuitable advice to transfer her personal pension plan (PPP) causing her losses. She wants compensation for the losses. What happened Mrs B says she met with an adviser from AFH in 2017 for advice about her pensions. She had a PPP with Royal London but no longer paid contributions to it and a NEST pension via her employer, which she did. Mrs B was then 51 and her PPP was worth around £39,300, with a projected pension income of £4,480 at age 65, although she planned to retire at age 67. AFH completed a fact find, recording that Mrs B had no other savings or investments and was living in rented accommodation. AFH reviewed the Royal London PPP and recommended that Mrs B transfer this to a SIPP with Aviva. AFH’s suitability report said, due to higher charges and costs the new plan “may not achieve the increased level of growth required or indeed return a lower fund than the existing scheme”, and because of that it wouldn’t normally recommend transfer. But, in this case it would, as Mrs B wanted access to ongoing advice given the importance of this plan for her retirement. The report said that the higher costs involved required additional growth of 1.9352% per annum compared to the existing PPP. Mrs B accepted the advice, and the transfer was completed in June 2017. In 2024 Mrs B says she became concerned about the advice as her plan was then only worth around £48,000. Having re-read the suitability report she complained to AFH about the high charges and poor returns on the plan. AFH didn’t accept the complaint. It said Mrs B had signed its “Service & Payment Agreement” on 7 April 2017 selecting the “Navigator Platinum ongoing service option”, the fees of which had been fully set out. And that on 30 May 2017 Mrs B had also signed a “Policy Declaration” confirming she had read and understood the fees and charges of the recommended plan. It said it had provided annual reports from 2018 to 2024 (when Mrs B ended the relationship) which also set out plan and adviser charges. It said whilst Mrs B wasn’t happy with the performance of the Aviva plan, the investments had been managed in line with her agreed attitude to risk (ATR) and challenging markets had impacted performance, which wasn’t guaranteed. Mrs B referred her complaint to our service and our investigator asked AFH for its business file. Our investigator first considered whether our service could investigate, as there are strict time limits on bringing complaints. She thought that we could, because whilst Mrs B hadn’t complained within six years of AFH arranging the transfer, she had complained within three years of her becoming reasonably aware she had grounds for complaint. Our investigator said the statements sent to Mrs B by AFH generally showed steady growth, consistent with the forecasts it had provided to her in the suitability report and wouldn’t have given cause for concern. And Mrs B said she only became concerned about the advice when she came

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across the suitability report again in 2024, whilst sorting through paperwork, and she raised her complaint with AFH in December 2024. Our investigator said if AFH disagreed with her conclusion here, it should explain why with supporting evidence. It didn’t do so. Our investigator then looked into the complaint itself, and she said it should be upheld. Our investigator said the advice to transfer the existing Royal London PPP to the Aviva SIPP was unsuitable because the new plan was significantly more expensive. And as a relatively cautious investor it was unlikely that investment returns would offset these additional costs. She said the projections from 2017 showed a significantly lower estimated fund at age 67 for the new plan compared to the Royal London plan at age 65, at the mid growth rate assumption used. Our investigator said the higher costs were largely due to the ongoing advice charge of 1.25% per annum, which was for AFH’s premium service, offering regular updates and annual reviews. But she said as Mrs B was a cautious investor, with a modest pension fund who had no specific investment objective other than growth, there was no requirement for the additional investment choice and diversity or the premium ongoing service AFH arranged compared to lower cost alternatives it also offered. And it was likely that Mrs B hadn’t appreciated the implications of the higher costs of the new plan. And a more appropriate recommendation would have been for Mrs B to remain with Royal London, where the charges were lower and the projected pension benefits significantly higher. Mrs B accepted our investigators view of the complaint, but AFH didn’t reply despite reminders. Because AFH hasn’t replied it has come to me to decide. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I’m upholding the complaint. As our investigator explained our service can’t consider every complaint that is referred to us. That’s because time limits apply to when complaints can be brought. To be within our services jurisdiction, complaints need to be made within either six years of the event complained about, or if later, within three years of when the complainant should have reasonably become aware they had grounds for complaint. Mrs B didn’t complain within six years of AFT arranging her transfer, so she is out of time on the first part of the rule. But I think she has complained within three years of when she reasonably became aware she had cause to complain. That’s because Mrs B says she only became concerned about the advice she’d been provided with in 2024, having re-read the suitability report and discussed this with a friend at work who suggested she speak to Pension Wise, which is part of the Government’s MoneyHelper service. She says until then she hadn’t appreciated how great the impact of the charges was on the performance of her new plan. And she then complained to AFH in October 2024. In coming to my decision, I’ve considered all the points made by both Mrs B and AFH but will focus on what I consider to be the main issues. When making recommendations advisers need to ensure these are suitable for the client’s needs and objectives and not automatically put in place what the client might think they require. And the financial regulator has specific, and long-standing expectations around recommendations to switch pension provider.

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In 2009 the Financial Services Authority (now FCA) published a report and checklist for pension switching (transfers) that is still applicable. This identified four main areas where consumers had lost out through switching pension providers: • They had been switched to a pension that is more expensive than their existing one(s) or a stakeholder pension (because of exit penalties and/or initial costs and ongoing costs) without good reason • They had lost benefits in the pension switch without good reason. This could include the loss of ongoing contributions from an employer, a guaranteed annuity rate (GAR) or the right to take benefits at an earlier than normal retirement age • They had switched into a pension that does not match their recorded attitude to risk (ATR) and personal circumstances • They had switched into a pension where there is a need for ongoing investment reviews but this was not explained, offered or put in place. The regulator also said that in most cases costs and charges would be the overriding factor as to whether it was in a consumer’s best interests to switch pension provider. And I think that is the main failing with AFH’s advice to Mrs B. Its recommendations were far too expensive to make it likely that the transfer would be in her best interests, even if there was some potential benefit from ongoing advice. And whilst the suitability report attempts to set out some benefits for Mrs B, I don’t agree that these were a “good reason” for the significant increase in costs, both at outset and on an ongoing basis. That means I don’t think the advice was suitable for Mrs B. Mrs B says she didn’t really understand the recommendations made or the subsequent reports sent to her by AFH. She did sign a declaration to confirm her acceptance of the recommendations and a fee agreement which outlined the initial and ongoing costs, points AFH specifically focused on when considering her complaint, rather than the merits or otherwise of the advice it provided. But Mrs B wasn’t an expert and AFH was required to provide recommendations that were suitable for her. Whilst the suitability report does state that the overall charges and costs were so much higher than her existing plan, it wouldn’t have normally recommended the transfer, it did so anyway. Broadly because Mrs B had said ongoing advice was important to her. But I think Mrs B’s requirements were simple and didn’t justify the additional costs involved. Her investment requirements and objectives were straightforward. I don’t think there was a requirement for the additional investment flexibility and choice AFH said was available under the new plan and used as a justification for the recommendation. And in any case AFH’s actual recommendation appears to have been to invest in a funds of funds managed portfolio which was to be automatically rebalanced annually. Very similar options were readily available at significantly lower overall cost with her existing plan with Royal London, but don’t appear to have been considered. Risk based portfolios which are automatically rebalanced are less likely to need ongoing reviews than bespoke investment options that might be recommended, typically for much larger pension funds than Mrs B’s. And in any case, it doesn’t appear AFH ever recommended Mrs B deviate from this standardised investment approach. Mrs B’s low risk ATR categorised as “Cautious to Moderate” by AFH, and relatively small fund value would leave little scope for additional investment returns to be achieved to recover the extra costs being incurred. And additional costs of nearly 2% per annum would be a very significant hurdle to overcome. Unlike future investment returns, which aren’t

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known, the impact of known costs is very clear. And, even if Mrs B had initially believed that ongoing advice would be beneficial, I think the impact of the costs should have been more clearly explained and the requirement for ongoing advice discounted by AFH, given the managed portfolio options readily available from her existing provider. But instead, its most expensive ongoing service proposition was put in place. AFH does seem to have provided Mrs B with regular valuations and sought approval for periodic fund switches. These seem to have been made at a portfolio level (that is, for all customers investing in that portfolio) rather than at a personal level based on Mrs B’s specific circumstances. A further, and in my view very weak, justification for the advice to transfer in the suitability report was that Mrs B wanted to “amalgamate your existing personal pension into one scheme for ease of personal administration”. The report continues under the heading “Reason of (sic) this Recommendation”. “The projected fund values at retirement are lower when compared to your existing policy but, in my opinion, this is acceptable in view of the wider fund choices available and simplified administration. This makes little sense; Mrs B already had one pension in one arrangement, and it’s likely the existing plan facilitated online access and administration if this was required. And as I’ve noted it doesn’t appear this wider fund choice was necessary or utilised. I don’t think the transfer was in Mrs B’s best interests and the advice wasn’t suitable for her, and she should have been advised to remain with her original provider. It’s possible that she has suffered losses as a consequence of this poor advice, and if so, it’s fair that she be compensated for that. Putting things right My aim in awarding compensation is to put Mrs B as closely as possible back into the position she would have been in but for the poor advice given by AFH. So, AFH must; • Compare the performance of Mrs B’s investment with the notional value if it had remained with the previous provider. If the actual value is greater than the notional value, no compensation is payable. If the notional value is greater than the actual value, there is a loss and compensation is payable. • AFH must add any interest set out below to the compensation payable. • If there is a loss, AFH must pay into Mrs B’s pension plan, to increase its value by the amount of the compensation and any interest. The payment should allow for the effect of charges and any available tax relief. AFH shouldn’t pay the compensation into the pension plan if it would conflict with any existing protection or allowance. • If AFH is unable to pay the compensation into Mrs B’s pension plan, it should pay that amount direct to her. But had it been possible to pay into the plan, it would have provided a taxable income. Therefore, the compensation should be reduced to notionally allow for any income tax that would otherwise have been paid. This is an adjustment to ensure the compensation is a fair amount - it isn’t a payment of tax to HMRC, so Mrs B won’t be able to reclaim any of the reduction after compensation is paid.

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• The notional allowance should be calculated using Mrs B’s actual or expected marginal rate of tax at her selected retirement age. • It’s reasonable to assume that Mrs B is likely to be a basic rate taxpayer at the selected retirement age, so the reduction would equal 20%. However, if Mrs B would have been able to take a tax-free lump sum, the reduction should be applied to 75% of the compensation, resulting in an overall reduction of 15%. • AFH must provide Mrs B with a simple calculation of how it worked out the figures. Portfolio name Status Benchmark From (“start date”) To (“end date”) Additional interest Aviva SIPP Still exists and liquid Notional value from previous provider Date of investment Date of settlement Not applicable Actual value This means the actual amount payable from the investment at the end date. Notional Value This is the value of Mrs B’s investment had it remained with the previous provider until the end date. AFH should request that the previous provider calculate this value. Any additional sum paid into the Aviva SIPP should be added to the notional value calculation from the point in time when it was actually paid in. Any withdrawal from the Aviva SIPP should be deducted from the notional value calculation at the point it was actually paid so it ceases to accrue any return in the calculation from that point on. If there is a large number of regular payments, to keep calculations simpler, I’ll accept if AFH total all those payments and deduct that figure at the end to determine the notional value instead of deducting periodically. There is guidance on how to carry out calculations available on our website, which can be found by following this link: https://www.financial-ombudsman.org.uk/businesses/resolving- complaint/understanding-compensation/compensation-investment-complaints Alternatively, just type ‘compensation for investment complaints’ into the search bar on our website: www.financial-ombudsman.org.uk. My final decision My final decision is that I uphold this complaint against AFH Independent Financial Services Limited. I direct AFH Independent Financial Services Limited to undertake the loss calculations set out above and pay any compensation due. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs B to accept or reject my decision before 18 March 2026.

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Nigel Bracken Ombudsman

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