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ombudsman news

issue 14

February 2002

complaints involving pre-"A Day" sales

A number of firms have asked us to clarify our position on pre-"A Day" complaints (those where the sale was made before the Financial Services Act 1986 came into force on 29 April 1988). Firms have also asked about the extent to which we expect them to take responsibility in these cases.

Generally, our position follows the views first set out in March 1997 in the PIA Ombudsman's News From The Ombudsman. We consider that firms giving advice before "A Day" had three basic legal obligations at the time:

  • a duty not to make negligent mis-statements;
  • a duty (if the representative gave advice) to advise with reasonable care and skill; and
  • a duty to disclose material information, if the representative gave information.

Few firms have disputed these principles. Where customers tell us they were advised to buy a particular policy, we generally believe them; in our experience, most policies are sold rather than bought. Where necessary, we also look at the customer's circumstances at the time of the sale. This will help us assess whether their statement of events is likely to be accurate. Firms are, of course, free to present any evidence that counters the customer's view.

Most of the pre-"A Day" complaints we receive concern mortgage endowment policies, and they generally fall into one of two categories: the customer considers the sale to have been unsuitable either:

  • because of the degree of risk involved; or
  • because the policy extends beyond the customer's retirement.

Both of these circumstances involve material matters that the firm should have addressed before the policies were taken out. So we will be looking at whether the firm can support its stance by providing evidence from the time of the sale to show that the level of risk was appropriate, or that the customer was aware that the policy would continue after their retirement and that the firm had established that this was appropriate.

case studies - pre-"A Day" sales


Mrs C complained to us about the mortgage endowment policy she had been sold in 1986. She said the firm had led her to believe the policy was guaranteed to repay her mortgage and to provide her with an additional lump sum. She raised concerns, too, about the fact that the policy ran beyond the date when she retired.

The firm argued that as there were no regulations in force at the time of the sale, the legal requirement of "duty of care" did not extend to informing customers that they might have difficulties maintaining payments after they retired.

We disagreed, taking the view that any firm that sold an investment product of this nature was obliged to consider whether the customer could afford the payments for the full lifetime of the policy. The customer could not reasonably have been expected to appreciate the importance of this.

We also felt that a mortgage endowment was an unsuitable choice for Mrs C, given her family commitments and financial circumstances. We awarded compensation, calculated in line with Regulatory Update 89 (RU89). This resulted in the term of the mortgage being reduced, so that it ended at Mrs C's normal retirement date.


Mr and Mrs S complained to the firm in October 2000, after learning that the with-profits endowment policy they were sold in 1987 would probably not produce sufficient funds to pay off their mortgage. They said the firm had told them that - when the policy matured - it was guaranteed to repay their £42,000 mortgage in full. They also claimed that the firm never explained the features and risks of the policy to them.

Our adjudicator explained to the couple that investment advice was unregulated at the time the policy was sold, although firms did have a common law duty to act with reasonable skill and care if they provided advice. The adjudicator asked Mr and Mrs S for any documents or other information from the time of the sale that might demonstrate that the salesman had breached his duty of care. They were unable to do this, so there were no grounds on which to uphold the complaint. Mr and Mrs S were unhappy with the situation and asked for their case to be referred to an ombudsman.

Noting the absence of any conclusive evidence about what was said at the time of the sale, the ombudsman looked at the submissions provided by both parties. He found that the policy illustration the couple were given in 1987 contained a warning that the policy would only be able to repay the mortgage if its bonus levels were maintained. In addition, the policy documentation showed that only the basic sum assured of £14,448 was guaranteed. The firm had been under no obligation to give specific risk warnings, only to ensure that it made no mis-statements or misrepresentations. As the couple had no evidence of mis-statements or misrepresentations, the ombudsman did not uphold their complaint.


In February 1987, Mrs T was sold a low-start unit-linked endowment policy that did not mature until seven years after she retired. She maintained that she had been given no documentation at the time of the sale, other than a graph that the adviser had drawn by hand. She said the adviser never told her there was any possibility of the policy not producing enough to pay the mortgage. She also claimed that when she queried the length of the policy, the adviser said the policy would produce enough to repay the mortgage early, so she would not need to make any payments after she retired.

As part of our investigation into the complaint, we asked Mrs T to complete a questionnaire. This showed that she was clearly averse to taking any risks with her money. She had no understanding of endowment policies, no other investments, and was a first-time buyer when she took out the policy.

Mrs T had signed the declaration on the application form, confirming that she had been given a policy illustration. She told us that the adviser had completed the application form and had asked her to sign it right away, not giving her any opportunity to read the form properly. She noted that she had, in any event, presumed that the "illustration" referred to in the declaration was the hand-drawn graph.

The firm repeatedly denied any responsibility for the sale, on the grounds that it had taken place before the introduction of financial services legislation. It rejected our adjudicator's view that, by selling a policy that was unsuitable for Mrs T's circumstances and extended seven years into her retirement, the adviser had failed to meet the proper duty of care owed to his customer.

The firm asked for an ombudsman's decision. At this point, in line with our usual procedure, the adjudicator offered Mrs T the opportunity to comment on the firm's submissions before they were referred to the ombudsman, and to make any further submissions of her own. She sent us a pay slip from around the time of the sale. From this, it was clear that there had been no need for the "low-start" facility and that she could easily have afforded the premiums if the policy had been for a shorter term, ending when she retired. Mrs T also produced a brochure that the firm had sent her, in response to her request for official documentation. This was dated several months after the sale. When we brought these items to the firm's attention, it acknowledged its liability.

The ombudsman upheld Mrs T's complaint and awarded compensation which put her in the position she would have been in if, instead of taking the mortgage endowment policy, she had taken a repayment mortgage over a shorter term, to coincide with the date when she expected to retire.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.