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This
selection illustrates some of the wide range of investment
cases that we have dealt with recently.
 41/8
mortgage endowment policy extends well beyond policyholder’s
retirement – complaint that policy was mis-sold
Mrs K was 57 years of age when, on the
firm’s advice, she took out a unit-linked mortgage
endowment policy for a term of 19 years. Two years later
her son, Mr K, complained to the firm on his mother’s
behalf. He said the firm had acted irresponsibly in selling
Mrs K a policy that, even assuming it achieved the necessary
level of performance, would not pay off the mortgage until
she was 76.
Mr K insisted that his mother had not been made aware of
any risk in taking out a mortgage endowment policy. He added
that his mother had not been in the best of health when
she was sold the policy, and had since had to give up work
altogether because of a deterioration in her condition.
And he questioned the mortgage figure of £28,000,
quoted on the policy documents, saying that his mother had
borrowed only half this amount. The firm rejected the complaint,
so Mr K came to us.
complaint upheld
When we asked Mrs K why she had opted for a mortgage that
would take her over 19 years to pay off, she said that this
was the only way in which she could afford the repayments.
From the ‘fact find’ completed by the firm’s
representative at the time of the sale, it appeared that
Mrs K had confirmed that she would have no difficulty meeting
the payments after she had retired. However, there was no
mention of where the money would come from. We noted that
the medical questionnaire on the proposal form had been
fully completed and revealed no significant health problems.
The mortgage application form showed that Mrs K had indeed
borrowed £28,000. This sum comprised a re-mortgage
of £14,500 and a new loan of £13,500, which
included £6,000 for home improvements.
We concluded that Mrs K had decided to
raise a new long-term loan, despite her unsatisfactory financial
circumstances and age, and that she had believed that she
could afford the repayments.
However, there was no evidence that the firm’s representative
had raised with her the issue of investment risk. The unit-linked
endowment policy that he recommended was not suitable for
Mrs K’s personal and financial circumstances or requirements.
The firm agreed to pay redress for any financial loss that
Mrs K had suffered as a result of its inappropriate advice.
This was based on a comparison with a repayment mortgage
for the same amount over the same term.
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41/9
customer complains about advice he claims he was given in
the course of telephone call to firm’s customer service
department
Mr O held a with-profits bond with the firm. He complained
that when he had telephoned the firm – just days before
it announced cuts in its final bonus rates – it had
incorrectly advised him not to sell his bond and had assured
him that its value would not fluctuate.
The firm rejected the complaint. It said that it had not
provided Mr O with any form of advice when he telephoned.
His call had been a routine one to its customer service
department in order to obtain a current valuation. The firm
also pointed out that bonus rates could – and did
– vary, and that this fact had been made very clear
to Mr O when he first took out the bond. Dissatisfied with
the firm’s response, Mr O came to us.
complaint rejected
In support of his complaint, Mr O sent us evidence in the
form of a telephone bill. This showed that he had made a
telephone call to the firm’s customer service department,
lasting around 10 minutes. He maintained that the length
of the call ‘proved’ that he had not called
merely to obtain a valuation, but had also discussed the
performance of his investment and had sought and received
advice about whether to cash it in.
Unfortunately, the firm did not have any
tape recordings of calls to its customer service department.
However, it told us that there were no circumstances in
which its customer services staff would have given advice;
they were not trained or authorised to do this.
The firm admitted that 10 minutes was
rather longer than normal for a call involving a routine
valuation. However, it said it was not that unusual for
calls to take so long. The data protection checks made at
the beginning of each call to establish the investor’s
identity could take some while, particularly if the caller
did not have some of the details, such as account numbers,
immediately to hand. And it was quite common, after asking
for a valuation, for callers to discuss routine matters
– such as the updating of their contact details –
or to ask about the procedure for selling their investment.
We concluded that, on the balance of probabilities, the
firm had not given Mr O any investment advice in the course
of his telephone conversation and we rejected his complaint.
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41/10
mis-selling of mortgage endowment policy – no provision
in ‘tick boxes’ on ‘fact find’ for
customers with lower than ‘cautious’ risk level
Mr and Mrs H complained to the firm when they discovered
that their mortgage endowment policy was unlikely to produce
enough, when it matured, to pay off their mortgage. They
said that when they took out the mortgage nearly 14 years
earlier, the adviser had not told them there was any element
of risk. When the firm refused to uphold their complaint,
they brought it to us.
complaint upheld
The ‘fact find’ that the firm’s adviser
had completed at the time of the sale recorded the couple’s
attitude to risk as ‘cautious’. This seemed
to match the level of risk represented by the with-profits
endowment policy that they were sold.
However,
unlike most ‘fact find’ documents, this one
had not provided a full range of risk options. There were
a series of boxes on the form, representing different levels
of risk, and customers were asked to tick the box that matched
their attitude to investment risk. There was no box for
customers who were not prepared to take any risk at all
with their money. So we thought it possible that the couple
had ticked the box that indicated their attitude to risk
was ‘cautious’, simply because this was the
lowest risk category available.
To try to get a clearer picture of the couple’s attitude
to risk, we therefore needed to try and find out more about
their circumstances at the time of the sale. We found no
reason to suppose that either of them had any particular
knowledge or experience of financial matters when they took
out the mortgage. Although both were in full-time employment,
their earnings were quite modest and they had no savings.
They had no form of investment other than Mr H’s holdings
in his employer’s ‘Share Save’ scheme.
However, we considered this to carry minimal – if
any – risk since, if they wished, employees could
sell back any shares allocated to them as soon as they received
them.
We concluded that the couple would not have wanted to take
any risks, when they took out a mortgage, and we upheld
their complaint.
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41/11
customer asks firm to re-instate existing pension policy
– it sets up new policy instead, without his authority
Mr D believed that he had reinstated an
existing pension policy that allowed him to vary the level
of his regular payments and to make additional payments
from time to time. However, when he attempted to make a
one-off additional payment of £380, the firm told
him that this was not possible.
When he contacted the firm about this,
he discovered that it had not reinstated his existing policy,
as it had agreed to do, but had sold him a completely new
policy. The firm did not accept his complaint that he had
not given it permission to do this, so he came to us.
complaint upheld
It was clear from the paperwork that the firm sent us that
Mr D had asked the firm’s representative to arrange for his existing
pension policy to be re-instated. An internal memo from
the firm to its representative explained that, for various
reasons, the policy could not be re-instated and a new policy
would have to be set up. There was no authority from Mr
D to set up a new policy.
Mr D told us that one of the main reasons that he had asked
for his existing policy to be re-instated was because he
wanted to avoid the charges associated with setting up a
new policy. He claimed that if he had known that a new policy
was his only option, he would have shopped around.
He accepted that the firm had sent him a policy document
quoting a new policy number, but he strenuously denied that
he had been told he had a new policy. He said the firm’s
representative had told him that, for ‘administrative
reasons’, he had been allocated a new policy number.
However, the representative had assured Mr D that he had
been given an ‘updated plan linked to the existing
policy’, not a new policy.
We concluded that the representative had misrepresented
the policy to Mr D. And we were not persuaded that Mr D
would have taken out the policy had he known it was a new
contract. We told the firm to refund, with interest, all
the contributions that Mr D had made into the new policy.
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41/12
FSAVC review – firm fails to offer reinstatement option
when making redress
Mrs M, a primary school teacher in her mid-40s, consulted
a financial adviser as she felt she ought to be doing more
to save for her retirement. On the firm’s advice,
she left her employer’s Additional Voluntary Contributions
(AVC) scheme and took out a Free Standing Additional Voluntary
Contributions (FSAVC) policy.
Over 5 years later, Mrs M found out, by chance, that she
would almost certainly have been better off if she had not
taken the firm’s advice. After she complained to the
firm, it agreed that the FSAVC policy had been mis-sold.
It calculated her financial loss, based on a comparison
between her FSAVC and her employer’s AVC scheme, and
then paid redress in the form of a lump sum added to her
existing FSAVC.
Mrs M queried the way in which the firm
had calculated her loss, as she was not convinced that it
had used appropriate information. The firm failed to provide
her with what she considered to be a satisfactory explanation,
so she came to us.
complaint upheld
We considered that the firm had failed to act in accordance
with the regulator’s guidance. This was not because
it had used inappropriate information when calculating Mrs
M’s loss, as she had thought. It was because the firm
had failed to offer her the option of being reinstated in
her employer’s AVC scheme (providing the scheme was
able to take her back).
We referred the firm to section 8.1.3 of the regulator’s
guidance for the review of FSAVC mis-selling. This states
that firms should offer reinstatement, where this is available,
if the AVC scheme was offered to employees as a ‘defined’
benefit.
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from
the Financial Ombudsman Service
issue 41 