overview of complaint trends

As with other investment-based complaints that we receive, the trigger that prompts concern that a personal pension may have been mis-sold is generally when consumers receive a valuation statement – or when there is a drop in the amount of income received. Such events can be the first indication the consumers get that a degree of financial risk was involved – so their concerns cannot be dismissed simply as complaints about disappointing performance.

In considering these complaints, we look at whether, when giving advice, the adviser paid sufficient attention to their client’s circumstances and objectives. The consumer might have received the advice when they first bought the policy, or at a later date when, for example, they were considering buying an annuity, or taking a cash withdrawal from an income draw-down policy.

Income draw-down policies were introduced in 1995, so have now been in existence for long enough for a small but steady stream of complaints about mis-selling to reach us. When we look at whether advice to invest in one of these policies was suitable, we take into account the level of income that the consumer would need, in order to meet their normal living expenses and maintain a minimum standard of living. In some cases, depending on the potential fund size, this leads us to conclude that the consumer could not afford to take the risk associated with this type of policy. Features such as the availability of cash withdrawal – and the fact that the balance of the fund can be preserved for potential beneficiaries to the policyholder’s estate – do not automatically make a draw-down policy a suitable investment.

By 31 March 2004, we had received around 4,800 complaints in total, involving split capital investment trusts and zero dividend preference shares – 'splits' and 'zeros'.

About half of the these complaints are against the sponsors of particular 'splits' companies. Some of these complaints are outside our jurisdiction because, in the circumstances of the particular cases, there was no customer relationship between the complainant and the 'splits' company sponsor.

Where the complaints are within our jurisdiction, we have put them into groups according to the circumstances and the 'splits' company sponsor involved. We are pursuing one or more ‘lead’ cases for each of these groups. Large amounts are at stake and the cases are hard fought. They will take some time to resolve.

Meanwhile, the FSA is pursuing its own investigations into the allegation that there was collusion among ''splits' company sponsors. That might or might not lead to some compensation arrangements for particular classes of investors. Meanwhile, and with the agreement of the FSA, we are pressing on with the cases we have in hand.

The other half of the ‘splits’-related complaints are against intermediaries – ranging from independent financial advisers to portfolio managers. Our decisions in these cases must be based on what the firm should have done in the light of the information available to it at the time it provided the service to its customer.

These cases throw up complexities for the ombudsman service beyond those raised by the complicated nature of 'splits' themselves. This is because many cases involve a combination of issues that are specific to the individual case, as well as issues that are specific to the individual 'splits.

Case-specific issues are ones that can only be investigated and assessed in the circumstances of each individual case. They include the risk profile of the complainant – and, in portfolio management cases, the agreed profile for the managed portfolio.

'Splits'-specific issues are ones that can only be investigated and assessed collectively, to ensure a consistent outcome between one case and another involving the same 'split' at the same period. They include the actual risk profile of the different types of shares in each of the 'splits', and the extent to which information about this was available to financial firms.

The conclusions on 'splits'-specific issues can vary over time, for a combination of reasons. First – the actual risk profile of the different types of shares in each 'split' can vary over time. Second – the extent of the information available to financial firms can vary over time. Third – the extent of the information available at a particular date can also differ depending on the role fulfilled by the financial firm. So, for example, at a particular date information may be available to a firm that acts also as a 'splits' investment manager, but not to a firm that acts as an intermediary.

Any 'splits'-specific information that we identify when considering individual cases is then fed into the collective investigation and assessment. And the 'splits'-specific conclusions that we come to have to be fed back to inform the outcomes of the individual cases.

That would be complicated enough even if each individual case involved a service provided on a single date for a single type of share in one 'split'. But, for example, portfolio management is a continuing service provided over a period of time. And each portfolio may contain a number of ‘splits’ shares of different types or in different ‘splits’ companies – or both of these.

So the management of the two-way flow of information between the case-specific issues and the ‘splits’ specific issues is an extremely complex task – which is over and above the complex issues raised by the investigation and assessment of the case-specific issues and the ‘splits’-specific issues themselves.

We are pressing on with our work as fast as we can, consistent with due process and a realistic use of resources. Of course, the time all this is taking is unwelcome to the consumers who have brought complaints to us, but we are doing our best to keep them informed of what is happening.

Other typical mortgage complaints include ones where the lender has given the borrower the wrong repayment figure – so that the borrower ends up owing more than expected – or where the mortgage term has changed in a way the borrower did not expect when taking out a further advance.

Although the number involved has not been great, we have begun to see complaints this year about so-called ‘shared-appreciation’ mortgages. With these mortgages, the lender had agreed to charge no interest (or low interest) in return for a share in the increase in value of the property.

Property values shot up faster than either lenders or borrowers had expected. Borrowers complained that lenders made extra profit, while lenders said they had securitised the mortgages and the extra profit had not gone to them. In most cases, we did not uphold the complaints – because the documents were extremely clear and had been fully explained to the borrowers, usually by their own solicitors.

During the year we have, however, seen a small but worrying number of cases where customers had a series of consolidation loans. An overdraft was turned into a loan account. The overdraft crept up again. A new, larger loan account was created to repay the original loan plus the new overdraft – and so on. Not surprisingly, some of these customers get into arrears and financial difficulties. Some lenders treat their borrowers sympathetically, as the Banking Code requires – others do not.

Most loan complaints are from personal customers. But some are from small businesses, often relating to complex financial products with significant early repayment charges. The clarity of the documentation provided by different lenders is extremely variable.

However, we are now seeing a significant number of cases involving what card issuers claim is ‘first party’ fraud – where the card holder colludes in an arrangement to defraud the financial firm that issued the credit card.

We still await a High Court decision on whether section 75 of the Consumer Credit Act 1974 – which makes the card issuer jointly liable with the supplier of the goods/services, without limit – applies to transactions abroad. Meanwhile, we continue to apply across the board the good banking practice employed by most firms of accepting liability for transactions abroad up to the amount of the credit provided.

Some of the answers are to be found in the Banking Code. But the requirements have changed considerably over the years. So we have summarised them, and other issues relating to such complaints, in a new technical briefing note on our website.

The new edition of the Banking Code that came into effect in March 2003 contained significant improvements in this area. But we continue to believe it would be better if firms were to send personal notifications of interest rate changes, unless the account balance is below some agreed limit. We will continue to press for that in the next review of the Banking Code, which has just got underway.

Many motor insurance policies have a 'keys in car' exclusion – a clause that excludes from cover any claims for theft where the driver left the car unlocked with the keys in the ignition (or on the seat). In last year's annual review we referred to the problems that arise from this exclusion and we highlighted in ombudsman news our general approach to this issue. However, we continue to see complaints where insurers appear to us to have applied this exclusion without good reason.

Our approach to the valuing of written-off cars is also well known in the insurance industry – and was most recently set out in issue 22 of ombudsman news (November 2002). Yet we still receive complaints where – again for no good reason, as far as we can see – instead of following this approach, the insurer has offered the policyholder less than the relevant price suggested by the motor industry guides.

Insurers’ marketing material often stresses the advantages to customers of having the insurer take care of arrangements for any repairs. The high standards and professional service that the repair firm appointed by the insurer will provide are emphasised. This can naturally lead to customers having high – and sometimes unrealistic – expectations. If insurers had an effective means of overseeing the quality of the repairers they appoint, then it seems to us that there would be far fewer complaints of this type.

With the increase in house prices, we have seen a steady increase in the number of disputes involving amounts in excess of £100,000 – the maximum amount, under our rules, that we can direct a firm to pay in redress. A major fire, or even significant subsidence work, can readily give rise to costs well in excess of this limit. The total number of these cases remains very small, as part of our overall caseload, and firms have generally responded positively in any cases where we have recommended that they should pay redress above this limit. We will, however, keep this matter under careful review.