The FOS has ruled against an IFA firm over a Sipps case, concluding that ‘unsuitable advice’ was given.

Independent Financial Strategies lost the case and has been told to compensate the complainants, a couple referred to as Mr and Mrs M.

The pair complained to the FOS after transferring personal pension plans into a Sipp.

Mr and Mrs M reportedly felt ‘misled’ because the purpose of the transfer was so that they could invest in residential property through the pensions. However, they subsequently discovered this had never been possible.

Adrian Hudson, the Ombudsman, said: “I take the view that Mrs M would have invested differently. It is not possible to say precisely what she would have done differently.

“I consider that my aim should be to put Mrs M as close to the position she would probably now be in if she had not been given unsuitable advice.”

Both were awarded £350 for their ‘trouble and upset’, while the FOS laid out a formula for how the firm should compensate them.

Gordon Brown had been expected to push forward with proposals plans to allow Sipps to invest in residential property at the time when the couple met the firm in 2006. But Mr Brown, Chancellor at that point, axed the idea late in the day.

Independent Financial Strategies sought a reconsideration of the jurisdiction decision on the basis that it has “always been possible to hold residential property in a Sipp, albeit with significant tax disadvantages”. These, they said, had been pointed out to the consumer in the adviser’s suitability letters.

The firm cited HMRC’s tax manual and the 2005 pre-budget report both of which confirmed punitive taxes applied to residential property held within a Sipp, saying this was evidence the consumers had the requisite knowledge from the outset.

They maintained that the consumers were aware that the adviser was advising them on investment in commercial property, at the outset and certainly prior to 2011, citing meeting notes the adviser had supplied.

The firm argued that contemporaneous evidence did not support the contention that Mr and Mrs M always intended to invest in a “buy to let” residential property using their Sipp funds.

The firm claimed the adjudicator had “wrongly assessed the complainants as being of modest means, with little previous investment experience”.

They also cited Mr M’s career as a chartered surveyor, working with property for the Citizen’s Advice Bureau as a circumstance which conferred sufficient understanding of investing in commercial property for it to be untenable for Mr and Mrs M to assert, following the adviser’s advice that they had always intended to invest in buy-to-let property.

They argued there was no breach of duty in respect of failing to advise that it was not possible to invest in residential properties via a Sipp, on the basis that it was possible, but subject to significant taxation penalties.

The firm stated that the adviser provided transparent advice consistent with the consumers’ objectives.

Mr Hudson said: “I am aware that the firm has argued that the future plan was to invest in commercial property. Mr and Mrs M stated that they believed that the idea of commercial property would be beyond their means.

“However I do consider that the transfer to the new and more expensive Sipp contract should not have taken place until a suitable property investment had been located. As a result of transferring into the Sipp sooner than was necessary Mr and Mrs M have incurred higher charges than they should have done. I therefore agree with the conclusion reached by the adjudicator that this complaint should be upheld.”