UK’s Financial Ombudsman Service (FOS) has upheld a complaint against advisory firm D M Cager for taking initial commission payments of £30,000 from the first 12 months of payments into two clients’ Sipps following advice given in 2008.
One of the clients was advised to pay £4,000 a month into the policy and the second client to pay £2,000 a month into another policy, according to Money Marketing.
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FOS said the clients complained that the commission will have a disproportionately high impact on their pension funds at retirement and also they were not provided with alternatives to paying commission.
The FOS ruled that D M Cager has to pay the client the difference between the existing pensions and a stakeholder pension, using the WMA stock market income total return index to provide a value for the stakeholder pension.
However, the difference has been calculated as a total of £29,026 is due to the clients, plus £200 for distress and inconvenience.
In addition, FOS has ruled that the policies were missold as the high initial charges were unsuitable for the clients. It added there were other products such as stakeholder pensions that did not include high initial charges.
Ombudsman Roy Milne said: "I am not satisfied a pension with high initial charges was suitable because if the contributions stopped before the selected retirement age, the effect of those charges would be significant."
D M Cager managing director Martin Dubber said that the commission was clearly explained to and accepted by the clients, and a fee option was also offered.
Dubber claimed that the redress calculation method was unfair as the stakeholder pension value used by the FOS has no charges applied to it.
Dubber added: "The difference between calculating with and without charges is significant. To say we are disappointed with the decision would be a gross understatement, but the cost of applying for a judicial review would be punitive for a firm of our size."
