As we approach an important part of the year as far as pensions are concerned – last day for annual returns via ROS online is 17th November – how many of us glaze over details of our pensions and investments and only when the proverbial fan is affected, do we then start to pick through the details?
John Lowe of MoneyDoctors.ie investigates when past advice resulting in losses can come back to haunt those who sold the investments…
Take Peter's case: Peter spent the boom years looking after his busy and successful business.
He had regularly paid into a company pension scheme for many years but back in 2007, with 12 years to go before retirement, he did a root-and-branch review. It was a bad time to do it – a financial adviser advised him to do three things:
- Move his existing pension investments away from managed funds and instead to place all his fund into a single property,
- Use the fund value to borrow more money,
- Significantly increase payments into the pension scheme for the period until retirement.
Between the original fund value and the higher payments going into the retirement fund, a total of over €1 million was committed to the new approach. He virtually lost all of this €1 million in the subsequent recession.
Sometimes, when money is lost, there is nobody to blame but yourself. However, did you get independent financial advice from a reputable authorised and regulated adviser? For instance, many people who invested in bank shares (and who similarly lost most, if not all, of their investment) never took any formal advice and instead relied on 'bar stool’ or ‘pub talk’ advice from their friends or rumour-mongers.
In Peter’s case, he took advice, but he wasn’t given the full picture. He was not properly advised of the risks associated with the new strategy and he was not advised of conflicts of interest and undisclosed payments between the adviser and other parties.
Because he took advice and because of the flaws in the advice provided, he was then advised by his Solicitor and subsequent Barrister that he would win a case against the companies involved and therefore took a High Court action in respect of his losses.
There are wider lessons to be learnt from Peter’s experience:
1. Not taking any financial advice at all has resulted in huge losses for many people in Ireland. Buying bank shares because your fellow golf club members also have bank shares has not proven to be a successful approach.
2. If you need financial advice, it is usually better to seek advice from an independent adviser. Pay a fee. Somebody earning the average Irish wage will earn well over €1m over the course of their career (in today’s money). Paying a fee of perhaps a few hundred euro to better manage your finances is a small price to pay. Not paying a fee leaves you open to be sold products and services - no such thing as a free lunch.
If you have lost money in the past, there may be recourse to the companies who advised you. Most of these flaws though have now been shored up through Central Bank of Ireland regulations and compliance rules with generally investors investing in these plans with their eyes wide open and aware of all the pitfalls.
3. Although each case is different, most likely you can only claim a loss if:
(a) the loss was within the last six years – Statute of limitations
(b) the loss was as a result of flawed advice given by a company or companies, and
(c) the advice was flawed from the outset – you cannot claim a loss because of an approach that you agreed with and which suited your circumstances but which subsequently proved to be unprofitable... e.g. placing a bet on the Grand National!
If you are considering such action, remember statutory law dictates that you must bring your case to court within six years from the date of breach of contract, not the contract date itself. There could be therefore a considerable gap between initial sign up and first realisation of the breach of contract.
With so many approaches to take and consider if you are in this position, the advice is to start with your accountant, fee-charging financial adviser or the Financial Services and Pensions Ombudsman to initially determine your position. It could be the first step in proving bad advice may be good for your pension!
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.