Best Practice IFA Group Limited · DRN-5793110

The complaint Mrs P complains that Best Practice IFA Group Limited (‘Best Practice’) recommended a Met Life Trustee Retirement Portfolio that wasn’t suitable for her needs. She says the product came at a significant cost and was aimed at providing a fixed income, which she was never interested in. What happened What happened in this case – including the roles of the parties involved and the nature of the advice provided – is not in dispute, so I’ve only included a summary of the events that led to this complaint being raised here. Mrs P had an existing relationship with Best Practice and was receiving ongoing advice from it, this complaint relates to its 2012 recommendation to invest some of the monies (£290,000) from her SIPP in a MetLife Trustee Retirement Portfolio (‘the MetLife plan’). At the time of the advice, Mrs P’s pension funds were under discretionary management by a third-party firm. The 2012 advice report doesn’t set out the charges applicable to Mrs P’s then existing arrangement but the 2010 report sets out, in relation to fees: Discretionary Manager Charges • Annual Management Charge 0.8% + VAT. • Fund Management Charges 0.5% (subject to change as funds change). • Dealing Charges None, but Stamp Duty is payable on the purchase of Stocks and Shares. Provider Charges By moving the funds to the management of the third-party firm the following SIPP charges would be payable from within the SIPP: • £313 one off administration fee • SIPP annual wrapper charge of £431 • Discretionary Fund Management annual fee of £269 The charges applicable to the MetLife Plan, included: • Annual Management Charge – 0.50% • Fund Manager’s Charge – 0.54% • Guarantee Charge – 0.70% • Trail Commission – 0.50% Best Practice also levied an initial charge of 1.25% and the above was in addition to the SIPP fees. The plan was established on 5 December 2012, and the initial premium was £290,000.

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Around a decade later, Mrs P was looking to take benefits (via drawdown) from the funds invested in the MetLife plan and was informed that these could only be taken by way of a fixed income and that if she wanted to access these funds flexibly, she would need to transfer – the fund or surrender value, which is significantly lower than the sum used to reflect the guaranteed fixed income available – to another provider. For example, as at December 2023, the fund or surrender value was £339,103.95 and the “Secure Income Base” (‘SIB’) value (the sum used to reflect the guaranteed fixed income available) was £414,644.61. Background to the complaint Mrs P complained to Best Practice in July 2024. Best Practice didn’t uphold Mrs P’s complaint and concluded that it had been made too late. Unhappy with Best Practice’s response Mrs P referred her complaint to our service. Best Practice objected to us considering the complaint, so our investigator first looked into whether or not we could consider Mrs P’s complaint. The investigator found that this is a complaint we can consider but Best Practice didn’t agree. Subsequently, one of our ombudsmen issued a decision on jurisdiction finding that this is a complaint that we can consider. One of our investigators then reviewed the merits of Mrs P’s complaint and concluded that it should be upheld. They didn’t think the advice was suitable. Mrs P accepted the investigator’s view, confirmed that she agreed with the findings reached and that the assumption made in relation to her tax position is correct (she is a basic rate taxpayer). Best Practice disagreed and made additional submissions explaining why it maintained that the MetLife plan was suitable and met Mrs P’s stated needs and objectives at the time of the advice. Best Practice also raised some concerns about the redress methodology set out by the investigator, in particular, that: • Mrs P hadn’t taken any mitigating action so any award for loss should be calculated up to the date she became aware of the problem and raised a complaint. • Any award should be subject to/on the condition that the policy is surrendered otherwise Mrs P could retain the policy (and benefit from it) and also benefit from compensation that seeks to put her in the position she would have been in had she not taken out the policy. • The proposed methodology is more aligned to a medium/medium-high risk profile. This doesn’t reflect what was recorded about Mrs P’s attitude to risk at the time of the advice. In the interests of bringing this matter to a close, Best Practice offered to pay Mrs P £5,000 in settlement of the complaint. The offer was based on the Bank of England average bond rate over the relevant period, which Best Practice considered to be in line with Mrs P’s recorded attitude to risk at the time of the advice. Mrs P didn’t accept the offer. Best Practice provided some additional comments in response to Mrs P’s submissions made in connection with the offer, it said that: • At the time of the advice Mrs P’s attitude to risk was correctly recorded as Low/Medium, it would be inaccurate to reclassify her attitude to risk as medium based on risk questionnaires completed long after the fact.

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• Drawdown options were available in 2012, but flexible drawdown was not fully introduced until 2015 and, in any event, the applicable requirement at the time (of at least £20,000 per year fixed pension income) was seemingly not met. • Capped drawdown would also not have been suitable for Mrs P and there is no indication she would have pursued an arrangement of this type. • A key objective in recommending the MetLife plan was to help secure a base income of £15,000 per year, which Mrs P said she wanted at the time. This was clearly documented. • It remains of the view that its recommendation was suitable for Mrs P at the time. Because agreement couldn’t be reached, the complaint has been passed to me for review. Since then, Mrs P has confirmed that she is actively looking to surrender the MetLife plan that is the subject of this complaint. 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’ve reached the same conclusion as the investigator and for broadly the same reasons. The parties to this complaint have provided detailed submissions to support their respective positions. I’m grateful to them for taking the time to do so. I’ve considered these submissions in their entirety. However, I trust that they will not take the fact that my decision focuses on what I consider to be the central issues as a discourtesy. The purpose of this decision is not to address every point raised in detail, but to set out my findings, on what I consider to be the main points, and reasons for reaching them. Where the evidence is incomplete, inconclusive, or contradictory (as some of it is here), I reach my decision on the balance of probabilities – in other words, what I consider is more likely than not to have happened in light of the available evidence and the wider circumstances. It’s my role to decide if the business (in this case Best Practice) has acted fairly and reasonably in respect of the individual circumstances of the complaint made and – if I find that the business has not done so – award appropriate redress for any material loss or distress and inconvenience suffered by the complainant, Mrs P, as a result of this. When considering what is fair and reasonable in the circumstances, I need to take account of relevant law and regulations, regulator’s rules, guidance and standards, codes of practice and, where appropriate, what I consider to have been good industry practice at the relevant time. Ultimately, I’m required to make a decision that I consider to be fair and reasonable in all the circumstances of the case. Relevant considerations In relation to the activity complained about, at the time of the advice – in accordance with its regulatory obligations under the Principles for Businesses (‘PRIN’) and the Conduct of Business Sourcebook (‘COBS’) – Best Practice had to act in its client’s best interests (PRIN 2.1.1R (6), COBS 2.1.1R) and give suitable advice (PRIN 2.1.1 (9), COBS 9.2.1R, COBS 9.2.2R). The Financial Services Authority’s (‘FSA’) December 2008 “Quality of advice on pension switching” report on the findings of a thematic review it had undertaken set out:

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“2.4 We assessed advice as unsuitable when the outcome was the customer switching into one of the following: • A pension incurring extra product costs without good reason (this outcome involved assessing cases where, for example, the reason for the switch was for investment flexibility, but this was not likely to be used; the reason was fund performance, but there was no evidence the new scheme was likely to be better; or the reason was flexibility of a drawdown option, but there was no evidence that this option was needed). • A pension that was more expensive than a stakeholder pension, but a stakeholder pension would have met the customer’s needs. • A more expensive pension in order to consolidate different pension schemes, but where the extra cost was not explained or justified to the customer. • A new pension and the customer had lost benefits from their ceding pension (for example, guaranteed annuity rates) without these being explained or justified. • A pension that did not match the customer’s attitude to risk and personal circumstances. • A pension where there was the need for ongoing advice, but this had not been explained, or offered, or put in place.” And “Unnecessary additional costs 3.4 This was by far the most common reason for unsuitable advice, accounting for 79% of unsuitable cases. The main problems found were: • extra product costs were incurred without good reason (65% of unsuitable cases); • a switch to consolidate different pension schemes where the cost was not explained or justified to the customer (35% of unsuitable cases); and • the new pension was more expensive than a stakeholder pension, but a stakeholder pension would have met the customer’s needs (21% of unsuitable cases).” These comments were made/findings reached in relation to pension switches. Here, as I understand it, the MetLife product was held within her existing SIPP, so Mrs P’s pension monies weren’t switched from one scheme to another. That said, I think these findings are still of relevance here. The FSA’s Finalised Guidance 12-16 published in July 2012 set out: “Key findings Replacement business 2.11 We continue to identify firms failing to consider the impact and suitability of additional charges when conducting replacement business. Several firms in our review failed to consider the costs and features of the existing investment, and were unable to quantify the additional charges associated with the new investment. In addition, several firms failed to provide a comparison of the costs of the existing investment and the new recommendation in a way the client was likely to understand.

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2.12 We saw examples of firms recommending switches based on improved performance prospects, but providing no supporting evidence to show that these performance prospects were likely to be achieved. While we acknowledge that firms cannot be precise about the potential for higher returns, where improved performance is an objective of the client, firms should clearly demonstrate why they expect improved performance to be more likely in the new investment. 2.13 Firms often failed to collect adequate information on the existing investment or failed to consider the features and funds available within the existing solution. Firms should collect adequate information on the existing investment to demonstrate they have taken reasonable steps to ensure the suitability of their recommendation. 2.14 In addition, our work indicates that firms’ file review functions failed to identify or challenge advisers on the failings we identified as part of our review. 2.15 These factors create a significant risk that clients are receiving unsuitable advice to switch investments. Firms must ensure their risk management systems and controls are fit for purpose and mitigate the risk of unsuitable client outcomes.” And “Considering cost Our expectations 3.7 We expect firms to consider the issue of cost for all recommendations to replace a client’s existing investment. 3.8 Our publication on investment advice and platforms stated that where a more expensive solution is recommended, there needs to be a good reason and this reason needs to be justified to the client. The most common reason for unsuitable advice identified in the platform review, and the earlier pension switching review, was unnecessary additional costs. 3.9 Where the advice is to switch or transfer an existing investment to a new investment, we expect to see firms conduct a cost comparison between the two solutions. Firms should consider all the costs associated with the existing investment and the recommended product or portfolio. For example, firms should consider the impact of any trading charges levied on the portfolio. Firms should also consider the impact of initial costs. 3.10 Where additional costs apply, firms must judge whether they are suitable in light of the needs and objectives of the client. Additional costs may be justifiable where they are associated with a specific benefit that is valued by the client. Firms should disclose any difference in the cost in a way that is fair, clear and not misleading. 3.11 Where firms do not have adequate controls in this area, they risk providing unsuitable advice and potentially breaching: • Principle 6 – A firm must pay due regard to the interests of its customers and treat them fairly; • Principle 9 – A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement;

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• COBS 2.1.1 – A firm must act honestly, fairly and professionally in accordance with the best interests of its clients; and • COBS 9 – ‘Suitability’.” [my emphasis] This guidance relates to replacement business more broadly including both switches and investments/investment solutions. The suitability of Best Practice’s advice We’ve been provided with copies of fact-finds and suitability reports completed by Best Practice relating to the initial 2010 advice, the 2012 advice that is the subject of this complaint, and later reviews/ongoing advice. In Best Practice’s recommendation report dated 12 November 2012, Mrs P’s attitude to risk was recorded “Cautious Plus”, which Best Practice described within the report as: “An investor usually prepared to take a small to medium degree of risk with their money, but wants more potential of outperforming cash returns over the longer term” Mrs P’s objectives were recorded, amongst other things, as: “In building an income strategy, you wish to incorporate some element of basic guarantees where possible, maintain flexibility and retain access to Cash. As a consequence, you therefore have specific objectives as follows; • To secure an element of income guarantee up to or approaching your total base income requirement. • To diversify investment and Market risk. • To retain access to further Tax Free Cash.” [my emphasis] The adviser set out that: "[Mrs P], as you know, you have total income flexibility within the current portfolio structure. But as you are in search of slight diversification of risk together with the provision of some “guarantees” where possible, I propose that you strategically diversify a segment of investment into the MetLife Guaranteed Income Trustee Investment Plan to provide some element of the future income requirement.” And “Invest £290,000 now in MetLife guaranteed Trustee Investment. Defer income to age 59 or as late as possible and draw 3.70% minimum guarantee yield on the new guaranteed fund value of £324,800, providing guaranteed minimum annual gross income of £12,017.60. (To satisfy the majority of annual income requirement). • This investment redirection is tactical. It aims to secure some level of future benchmark income at or near the required future lifestyle amount. It also allows fund growth in excess of basic minimum guarantees. • This investment diversifies risk within your portfolio. • Flexibility exists to exit at any point.

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• Income guarantees are not subject to GAD rates, which are currently very low." [my emphasis] And “Thank you for your instruction to invest £290,000 in to the Met Life Secure Income Trustee Investment Plan. I believe these meet your key requirements, which are for flexible yet secure, tax efficient capital growth with guarantees. Careful management of this investment portfolio, allied to your existing asset base will ensure a consistent standard of living into the future.” [my emphasis] Taking everything into account, I’m not persuaded that Best Practice took reasonable steps to ensure that its advice was suitable for Mrs P under the circumstances. The recommended plan came at a significant cost, and I don’t think that there was sufficient justification for this in this case. Mrs P’s desire for flexibility is something that she appears to have been consistent about in her interactions with Best Practice. In the 2010 fact-find completed it is noted that: “[Mrs P] confirms that she will not buy an annuity and will therefore require a strong effective long term investment approach.” And “…it is vital that she has a flexible efficient pension vehicle together with an effective underlying investment management service… [Mrs P] will almost certainly go into drawdown/USP.” Mrs P’s views on this don’t appear to have changed, notes in a 2015 fact-find set out that: “[Mrs P] is already retired and has been living on rental income, cash and a previous Pension crystallisation of £95,000. [Mrs P] would like to draw a further tax efficient net £30,000 from her Pension arrangements. This will be provided by a combination of tax free cash and taxable drawdown income, with the aim to pay little or no income tax. Each year going forward will be reviewed in isolation.” In her submissions to this service, Mrs P has explained that: “I did not want ‘an element of secure income’ – I wanted guaranteed growth in the value of some of my pension pot, which is quite different. My expectation was that with regard to the money I put into the MetLife Scheme I would receive a guaranteed investment return of 4% and for that I paid a total of 2.5% in fees each year. It was also my expectation that when the time came I would be able to draw down the pension in the same way as with my SIPP with [name of provider]. I have at no time had any concerns about running out of money because I retired early at the age of 53. I started to draw some pension from my SIPP with [name of provider] when I was 59. I had and still have sources of income other than my

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pension. My other sources of income are not flexible and as my objective each year is to stay under the 40% tax band I vary the amount of pension I withdraw which is why pension drawdown is important to me.” Some of the above comments post date the advice that is the subject of this complaint, but I’ve referenced them as they demonstrate a consistency in Mrs P’s approach to taking benefits in retirement and her desire for flexibility. The level of flexibility now available to Mrs P – which I note she has utilised – wasn’t available in 2012. However, some drawdown options were available at the time, and, in any event, Mrs P wasn’t looking to draw a regular income from her pension at the time. I think Mrs P was looking for diversification within her pension and to mitigate volatility, but I think this could reasonably have been achieved through making changes to the investment make up within her existing portfolio and without the incurrence of significant additional charges. Based on what I’ve seen, I also have some concerns about the information provided in the 2012 advice report. I don’t think that the restrictions that applied to the MetLife plan were highlighted sufficiently. I also think that a clear comparison of charges between Mrs P’s existing arrangement and the MetLife plan should have been incorporated in the report. For the reasons set out above, I don’t think Best Practice’s advice to invest £290,000 in the MetLife plan was suitable for Mrs P – taking into account her circumstances and objectives at the time – and I think that her complaint should be upheld. I’ve set out below how Best Practice should go about putting things right. In addition to any financial loss she may have suffered, I think that the realisation that she could not utilise the MetLife plan in the way she intended – and that she would have to accept the much lower surrender value to do so – caused Mrs P distress and inconvenience and Best Practice should compensate her for that as well. Putting things right As noted in the background to the complaint section of this decision, Mrs P is actively looking to surrender the MetLife plan. This should go some way to mitigating some of the concerns expressed by Best Practice, in relation to compensation, in response to the investigator’s opinion. However, under the circumstances, I also think it would be reasonable for Best Practice to make payment of any compensation – as calculated below – contingent on Mrs P surrendering the plan. This should negate the risk of overcompensation. Fair compensation My aim is that Mrs P should be put as closely as possible into the position she would probably now be in if she had been given suitable advice. I take the view that Mrs P would have invested differently. It’s not possible to say precisely what she would have done differently. But I’m satisfied that what I’ve set out below is fair and reasonable given Mrs P's circumstances and objectives when she invested. What must Best Practice do? To compensate Mrs P fairly, Best Practice must: • Compare the performance of Mrs P's investment with that of the benchmark shown below. If the actual value is greater than the fair value, no compensation is payable.

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If the fair value is greater than the actual value, there is a loss and compensation is payable. • Best Practice should also add any interest set out below to the compensation payable. • Best Practice should pay into Mrs P's pension plan to increase its value by the total amount of the compensation and any interest. The amount paid should allow for the effect of charges and any available tax relief. Compensation should not be paid into the pension plan if it would conflict with any existing protection or allowance. • If Best Practice is unable to pay the total amount into Mrs P'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 total amount 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 HM Revenue & Customs (‘HMRC’), so Mrs P won’t be able to reclaim any of the reduction after compensation is paid. • The notional allowance should be calculated using Mrs P's marginal rate of tax. • For example, if Mrs P is likely to be a basic rate taxpayer in retirement, the reduction would equal the current basic rate of tax. However, if Mrs P would have been able to take a tax-free lump sum, the reduction should be applied to 75% of the compensation. • Pay to Mrs P £200 for the distress and inconvenience caused. Income tax may be payable on any interest paid. If Best Practice deducts income tax from the interest it should tell Mrs P how much has been taken off. Best Practice should give Mrs P a tax deduction certificate in respect of interest if Mrs P asks for one, so she can reclaim the tax on interest from HMRC if appropriate. Portfolio name Status Benchmark From (“start date”) To (“end date”) Additional interest The MetLife plan (monies invested therein) Still exists and liquid For half the investment: FTSE UK Private Investors Income Total Return Index; for the other half: average rate from fixed rate bonds Date of investment Date of my final decision Not applicable Actual value This means the actual amount payable from the investment at the end date. This is the fund (surrender) value of the Metlife plan (not the SIB figure). Fair value

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This is what the investment would have been worth at the end date had it produced a return using the benchmark. To arrive at the fair value when using the fixed rate bonds as the benchmark, Best Practice should use the monthly average rate for one-year fixed-rate bonds as published by the Bank of England. The rate for each month is that shown as at the end of the previous month. Those rates should be applied to the investment on an annually compounded basis. Best Practice must pay the compensation within 28 calendar days of the date on which we tell it Mrs P accepts my final decision. If Best Practice fails to pay the compensation by this date, it should pay 8% simple interest per year on the loss, for the period following the deadline to the date of settlement. Why is this remedy suitable? I’ve decided on this method of compensation because: • Mrs P wanted income with some growth with a small risk to her capital. • The average rate for the fixed rate bonds would be a fair measure for someone who wanted to achieve a reasonable return without risk to her capital. • The FTSE UK Private Investors Income Total Return index (prior to 1 March 2017, the FTSE WMA Stock Market Income total return index) is made up of a range of indices with different asset classes, mainly UK equities and government bonds. It’s a fair measure for someone who was prepared to take some risk to get a higher return. • I consider that Mrs P's risk profile was in between, in the sense that she was prepared to take a small level of risk to attain her investment objectives. So, the 50/50 combination would reasonably put Mrs P into that position. It does not mean that Mrs P would have invested 50% of her money in a fixed rate bond and 50% in some kind of index tracker investment. Rather, I consider this a reasonable compromise that broadly reflects the sort of return Mrs P could have obtained from investments suited to her objectives and attitude to risk. My final decision I uphold the complaint. My decision is that Best Practice IFA Group Limited should pay the amount calculated as set out above. Best Practice IFA Group Limited should provide details of its calculation to Mrs P in a clear, simple format. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs P to accept or reject my decision before 24 April 2026. Nicola Curnow Ombudsman

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