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Pre RDR pension transfer FOS decision

SallyG
Posts: 850 Forumite
http://www.moneymarketing.co.uk/news-and-analysis/regulation/fos-upholds-decision-against-openwork-over-10k-pension-transfer-commission/2005885.article
"The ombudsman upheld the complaint in part, saying it is difficult to determine what the adviser said about the level of commission.
It says the recommendation was not unreasonable as it allowed the client to invest in more than one fund.
But it says there was no justification for recommending a fund with a charge 0.3 per cent higher than the standard charged funds, which would have provided the required diversification.
In the final decision, published last week, ombudsman David Ashley said: “Although information about charges may have been provided, it does not appear it was provided in a format similar to that sent to us by the firm in response to the complaint."
http://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=27825
"The ombudsman upheld the complaint in part, saying it is difficult to determine what the adviser said about the level of commission.
It says the recommendation was not unreasonable as it allowed the client to invest in more than one fund.
But it says there was no justification for recommending a fund with a charge 0.3 per cent higher than the standard charged funds, which would have provided the required diversification.
In the final decision, published last week, ombudsman David Ashley said: “Although information about charges may have been provided, it does not appear it was provided in a format similar to that sent to us by the firm in response to the complaint."
http://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=27825
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Comments
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But it says there was no justification for recommending a fund with a charge 0.3 per cent higher than the standard charged funds, which would have provided the required diversification.
That is the killer.
If the person is deemed to be an inexperienced investor with no real interest shown in the investment returns or the investments themselves then you should look to use cheapest funds to achieve the objective. If you recommend more expensive ones, you need to justify it. it can be justified for the right person very easily but in this case, there was no justification. It is quite possible that a couple of extra lines on the suitability report or factfind would have been enough to change the decision. e.g. "I made you aware that the pension offered funds of lower cost which could achieve the required investment diversification. However, in our discussions, we agreed that you were happy to pay a little bit more in annual charges if you felt it increased the potential for better investment returns over the long term."I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
The £10k commission seems to have attracted the headline, but from looking at the FOS verdict this appears to be a red herring.
It seems to be a simple case where the adviser has failed to demonstrate a need for the higher charged funds.I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation0 -
Thanks - I thought it might interest people who were involved in pre RDR transfers - a lot of transfer activity was reported in the run-up to the deadline - may not have been so easily explained?
Caught my eye because what feels like a cosy chat over a cuppa in the kitchen with an IFA is deadly serious - a lot of financial selling and advice seems to be entirely verbal at the negotiating stage and later appears as some contractual bind in the following letter - trying to get an email with written information out of a direct sales "adviser" seems well nigh impossible but a 2 minute chat over the phone may turn out to have been an annual review [£kerrrching] with all sorts of spin put on small talk in the surprising letter generated. No IFA or financial direct salesperson is ever just asking how you are today.0 -
I thought it might interest people who were involved in pre RDR transfers - a lot of transfer activity was reported in the run-up to the deadline - may not have been so easily explained?
Sometimes FOS decisions do surprise. However, this one largely meets expectation in that they rejected the point on the commission and upheld the point on lack of justification for more expensive funds. There is actually a rule in place called RU64 that requires advisers to justify the reasons why more expensive funds should be used. Its been there since 2001. So, its nothing unusual or strange.
However, I suspect the adviser hasnt actually done anything malicious or even did anything wrong other than failing to document something adequately and has been caught out accordingly and the person probably lost money during the credit crunch and complained. Given that the redress is based on projections and there is just £6000 difference in the projections, we are not talking about much.
Reading between the lines on that complaint, I have a suspicion that the complaint found no evidence of wrongdoing on the £10k commission (which is what the complaint was about) but the ombudsman didnt like a figure of that size and decided to look at any other way possible to get a redress payment and used the fact that more expensive funds were used than the cheap internal funds without justification as a means to achieve that. By awarding £6000 as redress, the figure balances out as the adviser still being £4000 better off than had they not provided the advice. Referring to more expensive funds as requiring sophisticated or specialist knowledge is not something many here would think is right. It is only the pension wrapper that has that rule. Had the sale been ISA and/or unwrapped UT/OEICs then this would not have been possible to uphold unless it was non-mainstream investments.
The IFA networks and compliance companies read the FOS publications and outcomes. I fear that this will see some, if not all, encourage their advisers to dumb down advice (something that is already happening) leaving people potentially worse off over the long term.No IFA or financial direct salesperson is ever just asking how you are today.
You havent used an IFA. you use a direct salesforce. So, it isnt really fair to compare the two. Salesforces tend to be transactional in nature and charge accordingly. IFAs can be either. The service and charging methods you get on transactional will be different to servicing.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Fair comment - I met/interviewed/listened to maybe six IFAs when I first got catapulted into a DC pension - then I looked at another two for annuity quotes - I admit I didn't engage any of them.0
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