FINANCIAL OMBUDSMAN SERVICE [Merged]

Wynn2022

Thanks for link, this ombudsman must be new as they are not listed.
Copy of decision attached, too long for one post, decision to follow.
The complaint has been upheld but what exactly has been upheld? Will the company need to do anything to improve matters for other clients?

The complaint

Mr H complained about the way COMPANY LIMITED handled his query about a proposed increase in his Income Replacement Plan payments. He also felt he was misled about the plan benefits and not told that the value of his units could be reduced to zero, which meant he wouldn’t be able to take a cash payment at the end of the plan as he’d been led to understand.

What happened

In 1997, Mr H took out an Income Replacement Plan. In return for a monthly premium, the

plan gave Mr H the reassurance of being paid a monthly income benefit if he was unable to

work as a result of disability due to accident or sickness.

The premiums Mr H paid bought units in his chosen investment fund. Units were then

cancelled each month to pay the administration charge and the cost of providing the cover

until the next premium was due. Any remaining units provided the plan with an accrued

value which was intended to help meet the plan costs later on.

By 2011, the costs of providing the cover exceeded the premium Mr H was paying and the

accrued value was used to support the increasing cost of life cover to maintain the

continuation of the sum assured. This subsidised Mr H’s level of cover up until November

2021.

COMPANY LIMITED wrote to Mr H on 14 October 2021 – essentially, he would have to choose whether to pay more to continue his existing cover, reduce the level of cover, adjust the deferment period to bring the premium down to an amount he wanted to pay or discontinue the plan.

But the way things were set out in the letter was at odds with other information COMPANY LIMITED provided – and all of this came as a surprise to Mr H.

This prompted Mr H to contact COMPANY LIMITED to try to understand what was happening.

COMPANY LIMITED has acknowledged that technical issues when IT changes were made impacted adversely on service and response times and it admitted there had been delays and poor communications when Mr H got in touch about this. It explained why Mr H needed to consider future funding of his plan. It agreed that information included in a statement issued in November 2021 was at variance with options COMPANY LIMITED had set out in the letter sent to Mr H on 14 October 2021. COMPANY LIMITED offered Mr H £250 for the trouble and upset this had caused and the delay in communications.

Mr H didn't feel this went far enough to resolve things and so he brought the complaint to us

and one of our investigators looked into what happened.

Our investigator didn’t feel that COMPANY LIMITED needed to take any further action. She said the offer of £250 was fair and reasonable to reflect the impact on Mr H of COMPANY LIMITED’s delays and poor communications and the problem with the options and figures quoted in the 14 October 2021 letter.

Mr H disagreed with our investigator. In brief summary, he mainly said:

he was concerned the investigator might not have considered all the paperwork

COMPANY LIMITED’s representative had clearly told him he would accrue units every year which would belong to Mr H and could be redeemed at the end of the policy if he didn’t

make a claim the surrender value was a major sales feature and one of the reasons he chose this plan

plan paperwork clearly states that the increase in monthly payments and benefit

would be reviewed annually and be in accordance with the Retail Price Index or 12%

whichever is the lesser. It did not refer to any other changes.

had Mr H been alerted to problems with the plan earlier he might have discontinued it

sooner

the letter sent on 14 October 2021 was confusing, contradictory and ‘…was

horrifying and extremely upsetting to receive’.

the compensation offered wasn’t enough to cover premiums he continued to pay,

including premiums taken after he instructed COMPANY LIMITED to discontinue the plan and he disagrees with the investigator’s suggestion that he needs to bring a separate complaint about this when he feels this is all part of the same overall issue.

The complaint came to me to decide. I issued a provisional decision.

What I said in my provisional decision

Here are some of the main things I said.

“I’d like to reassure Mr H that whilst I have summarised things in my own words, I’ve thought

carefully about everything I’ve seen and been told. We provide an informal service as a free

alternative to the courts and no discourtesy is intended if I do not address every point raised.

I’ve concentrated on what seem to me to be the core issues in deciding the complaint and

I will deal with everything that affects the outcome.

It’s my understanding that the crux of Mr H’s complaint is that he was led to understand that

the plan would have a cash value at the end if he didn’t make a claim on it and the way COMPANY LIMITED communicated with him about this was upsetting and badly handled.

I sympathise with Mr H – I can understand that what’s happened has been upsetting and

frustrating for him. But what he says isn’t enough on its own for me to be able to uphold his

complaint. I must look at all the available information and decide what I think is most likely on

a balance of probabilities. This means making some reasonable assumptions where there’s

only limited information. And I must be impartial. There’s more information on our website

which explains the Financial Ombudsman Service approach.

Despite what Mr H recalls from his meeting with COMPANY LIMITED’s representative when he decided to take out the plan, the point of sale paperwork included ‘Important Information’ about the projected cash value and what Mr H might get back at the expiry age of his plan. It said: ‘These figures are only examples and are not guaranteed. They are not minimum or

maximum amounts. What you will get back depends on how your investments grow. You

could get back more or less than this.’ This point was re-stated elsewhere in the information

sheet.

So, on balance, I can’t fairly say that COMPANY LIMITED didn’t provide Mr H with accurate information about the possibility his plan might not deliver a cash value at the end. And given that the main aim of the protection plan was to provide Mr H with a monthly income if an illness or accident stopped him from being able to work, I don’t find that the plan was unsuitable for Mr H’s needs or circumstances.

COMPANY LIMITED reviewed the plan each year to make sure the premium he paid was enough to maintain his current cover. When it became evident in 2021 that Mr H wasn’t paying enough to maintain the level of cover he had under the plan and the accrued value had all been used up, COMPANY LIMITED wrote to him on 14 October to alert him to the situation.

The purpose of the letter was to enable Mr H to decide what to do. Whilst I've taken into

account what Mr H says about the content of this letter, and I appreciate it was upsetting for

him to receive, I don’t find that the tone or content was inappropriate, unfair or unreasonable.

But, as COMPANY LIMITED has admitted, the information Mr H needed to know wasn’t well set out and I can see why it simply caused confusion.

COMPANY LIMITED has explained that around this time, after making changes to its IT systems which were intended to lead to improvements for customers, there were technical issues arising causing delays and other problems. It’s unfortunate this meant COMPANY LIMITED had a backlog which led to it not dealing as promptly with Mr H’s queries and concerns as he was reasonably entitled to expect.

I think COMPANY LIMITED is right to have acknowledged that it could have handled things better – its letter of 14 October 2021 could have been clearer and I have no doubt that the admitted delays in communication that followed added to Mr H’s concern and frustration.

I consider the offer of £250 made by COMPANY LIMITED fairly reflects the impact on Mr H of the shortcomings on its part. And although the offer was originally time limited and the deadline for acceptance has expired, Mr H may wish to know that COMPANY LIMITED has nevertheless confirmed its willingness to hold this offer open for acceptance, which I think reflects its intention throughout to try and reach a fair resolution on Mr H’s complaint.

I’m sorry to disappoint Mr H as I understand he was hoping for additional compensation. But

as I’m satisfied that the redress COMPANY LIMITED has previously offered is fair, I’m not telling it to take any further action beyond paying the £250 it has offered.

 

In coming to my decision, I would just mention that if Mr H is still concerned that COMPANY LIMITED took premiums after he said he wanted to discontinue the plan, he first needs to put this new complaint to COMPANY LIMITED as this was not part of his original complaint that I am dealing with here. If Mr H is unable to reach an agreed resolution, then he can bring that complaint to this service after COMPANY LIMITED has first had an opportunity to respond.

I hope that setting things out as I've done explains how I've reached my conclusions and

even though this isn’t the outcome Mr H hoped for, he will at least feel that his complaint has

been fully considered by the Financial Ombudsman Service.”

What the parties said in response to my provisional decision

Mr H disagrees with what I've said in my provisional decision. I will briefly summarise here

some particular concerns he has mentioned, as follows:

I have incorrectly understood Mr H’s main complaint ‘…which is that COMPANY LIMITED was in

breach of contract’.

The adviser provided numerous illustrations ‘…referring to and illustrating projected

cash values…nowhere does it state or indicate it would be zero’.

COMPANY LIMITED did not provide accurate information to Mr H in 2011 or subsequently when it should have realised there were issues with the plan.

According to the contract any changes were automatic and so Mr H ‘should not have

had to make any decisions’.

COMPANY LIMITED’s letter of 14 October 2021 lacked any proper explanation, was contradictory and gave Mr H no reasonable options. Mr H says changes to IT systems can’t be an excuse – he puts it this way: ‘a computer does not write such nonsense’.

COMPANY LIMITED failed to handle his complaint properly and ‘… were unable to resolve the basic query as to why they were breaching the contract and changing payments and

benefits. This is not just a major IT issue but a management failure issue.’

£250 compensation doesn’t cover ‘…the payments and time’ Mr H has had to spend

trying to get a reasonable resolution.

Mr H feels that his complaint about COMPANY LIMITED continuing to take payments after they were instructed to stop is all part of the same issue.

Mr H feels strongly that it is not just his complaint that needs to be investigated but

COMPANY LIMITED Income Replacement Plans, how they are set up and how they are sold.

COMPANY LIMITED has acknowledged my provisional decision.

Wynn2022

What I’ve decided – and why

I’ve considered all the available evidence and arguments to decide what’s fair and

reasonable in the circumstances of this complaint.

I’d like to thank both parties for all the information that has been provided about this matter

and Mr H for responding to my provisional decision in such detail. Whilst I have summarised

the main issues partly in my own words, and sometimes in less detail than Mr H, I’d like to

assure him I've thought about everything he’s said and carefully considered the additional

documentation he’s sent me.

The purpose of my decision isn’t to address everything Mr H has mentioned on a point by

point basis as that’s not what I’m required to do in order to reach a fair decision in this case.

I appreciate this might be frustrating from Mr H’s point of view. But it’s part of my role to

identify and concentrate on the issues I need to address in order to reach a fair outcome.

I hope Mr H understands I intend no discourtesy when I comment here only on the things

that affect the outcome of his complaint.

I am sorry Mr H feels that I have failed to properly understand that his main complaint

concerns ‘breach of contract’. But it’s not within the remit of this service to decide matters of

contract law – that’s something that only a court can determine. I identified the complaint

issues that I can address.

I’ve concentrated just on Mr H’s initial complaint. Although I can understand why Mr H wants

me to widen the scope of my review to include his concerns about COMPANY LIMITED having continued to take direct debit payments until Mr H cancelled these himself, this is not within the remit this complaint. If Mr H has further cause for complaint that goes beyond the scope of the complaint he brought to us in April 2022, then he needs to first tell COMPANY LIMITED what his concerns are, so it has an opportunity to respond. If he still feels unhappy after that, he may be able to bring a new complaint to this service. We can’t award redress for any complaint where the financial business hasn’t first been given a chance to put things right.

I note that Mr H brought his complaint to this service shortly after COMPANY LIMITED said it was ‘…yet to respond in full to explain what has happened’. So I think it's fair to say events were overtaken by Mr H bringing his complaint to this service and COMPANY LIMITED then continued its correspondence with us. It’s not however in our service’s jurisdiction to look further into complaints about the way COMPANY LIMITED dealt with Mr H’s complaint. The industry regulator, the Financial Conduct Authority (FCA), says our service can only look into complaints about ‘regulated activities’ and complaint handling isn’t a regulated activity.

I can consider the customer service Mr H received – which is what I've done in my decision.

The way a financial business operates, the products it sells and its internal systems are

subject to oversight and regulation by the FCA. So although I understand that Mr H’s

concerns go beyond his own complaint I can only look at his complaint.

Mr H hasn’t provided me with any new information that changes what I think about this case.

I’d already considered the main points he has mentioned above when thinking about my

provisional decision and addressed all the points raised which had a bearing on the

outcome.

I can tell COMPANY LIMITED to pay compensation or take other steps to put things right if I am satisfied that COMPANY LIMITED did something wrong or acted unfairly or unreasonably and this led to Mr H suffering some detriment and/or financial loss.

It’s not disputed that COMPANY LIMITED’s letter of 14 October 2021 included incorrect information and was unhelpful and confusing. COMPANY LIMITED admitted, and I have found, there were delays and failures of communication. What I have to decide is what COMPANY LIMITED needs to do to put things right.

COMPANY LIMITED offered to pay £250 for the trouble and upset the matter caused Mr H and for the delay in communications. This seems fair to me. If COMPANY LIMITED hadn’t already volunteered this payment, I can’t fairly say that I have seen enough to make me think it would be fair and reasonable to award any more than £250.

I haven’t been provided with anything to show that Mr H suffered actual financial loss.

And whilst he’s mentioned his own time spent dealing with his complaint, this isn’t a reason

for me to increase any award of redress.

I can understand that Mr H is disappointed in the outcome of his complaint but I hope that

setting things out as I’ve done helps explain how I’ve come to my view.

Putting things right

To put things right, COMPANY LIMITED should pay the offer it made to settle Mr H’s complaint (if it hasn’t already done this).

My final decision

I uphold this complaint and direct COMPANY LIMITED to pay Mr H £250 redress.

Under the rules of the Financial Ombudsman Service, I’m required to ask Mr H to accept or

reject my decision before 1 March 2023.

eskbanker

Wynn2022 said:

The complaint has been upheld but what exactly has been upheld? Will the company need to do anything to improve matters for other clients?

The FOS remit doesn't include instructing (or even just recommending) that companies change their practices and policies for other clients, it's solely concerned with how matters are resolved for you, and your specific circumstances, so, as I read it, 'upheld' signifies that their final decision is that £250 represents appropriate compensation to resolve your complaint.

Manxman_in_exile

Sorry if I've missed it but what resolution are you looking for?  You aren't going to get the plan back on the terms you think you should from the sound of it. (The decision reads like an "investments may go down as well as up decision" but my knowledge of financial products is very limited)

Do you want the company to refund your premiums back to 2011 when problems began with the plan, and they started to eat into the accrued capital value of the plan to keep it afloat, but they didn't tell you that they were having to do that?  I would have thought that if cancelling the plan then had been an option, then they should have told you in 2011 about the "problems" to give you that opportunity, or at least to give you an opportunity to make alternative or additional arrangements.  It seems unreasonable to me for them not to have informed you back in 2011 what was happening*.

As I read it, the Ombudsman decision is really only looking at the way the company communicated these changes to you, and is not dealing with the substance of your complaint against the company.  Or rather what you think the substance of your complaint was.  What actually was your complaint that the Ombudsman was investigating?

If you are intending trying to bring this further as a breach of contract case, I suggest you check, doublecheck, and check again the precise wording of what you signed up to.


*At least that's my understanding of what has happened but I may be mistaken

DullGreyGuy

Wynn2022 said:

Copy of decision attached, too long for one post, decision to follow.
The complaint has been upheld but what exactly has been upheld? Will the company need to do anything to improve matters for other clients?

The fact they sent out a confusing letter and were then too slow to respond hence the £250 award.

I'd argue its really partially upheld as they didnt agree with the allegations around a cash value on the basis the Important Information did the usual butt covering about it being an illustration and that there is no minimum or maximum value.

They dont appear to addressed your comments around premium escalation but this is the problem with how many people write complaint letters... they are often long and rambling making it very hard for the handler to identify the core points. 

The FOS is a complaints handling service not a regulator. They will instruct the company to take certain actions/pay certain amounts in relation to each complaint they uphold. The company has to pay this plus a general complaint fee £750 per complaint. Whilst the FOS dont mandate wider changes many companies will consider implementing their own changes to avoid future complaints.

In addition the FOS provides data on the complaints its receiving to the FCA who is a regulator. When trends start to appear either in a company or product then the FCA can choose to take the wider/bigger actions - eg banning price walking for Motor and Home

Wynn2022

I believed I had an Income replacement plan until I retired that would provide me with an income if unwell. The payments and benefits would increase with RPI. Also, a cash payment if no claims made.

The Ombudsman upheld the claim but for what:

1.      Change of contract by increasing charges and cutting benefit which was not in accordance with the contract, not in Ombudsman remit as contract law.

2.      Delay in responding, not in Ombudsman remit. “complaint handling isn’t a regulated activity”

3.      No final cash payment, not defined so could vary to nothing.

4.      Taking payments after instructed to end plan, separate matter.

5.      Not informing me earlier that there were issues with the plan, no comment.

6.      Why there was such a major problem with the plan in one year after running for 23 years with no apparent issues, no comment.

It appears to be for sending a confusing letter in October 2021. Although Ombudsman accepts it was an IT issue.

I was unable to make a decision as required in the October letter as the 2 options were the same and contrary to the contract, the other options I had to phone to discuss. Even if I had been able to get through by phone, how could they have discussed the matter when they were still looking into the matter in the following March. In March they gave me a detailed breakdown of how the plan had been running and started to fail in 2011, yet they were unable to inform me of options regarding payments and benefits. They were taking monthly payments but I did not know what my benefit may be if I made a claim, as they had told me there was an error in the amount stated, it could have been nothing.

I wanted the plan to be investigated as I feel it is fundamentally flawed especially for later years and it was also partially mis-sold. I was expecting the Ombudsman to require all payments back to November to be refunded and provide a small amount of compensation for the inconvenience at the very least. The £250 is less than the payments made since November so the company have not really been penalized while I no longer have an income replacement plan. I accept this was my choice and I believe I have had cover for the previous 23 years, although it was not tested. I had no indication what the following years payments may be and felt they were deliberately delaying giving me an answer, if they knew there was an error and could detail the issues with the plan, why could they not provide the information regarding payments and benefits. I lost all confidence in the company and considered it was no longer value for money.

I now understand why the financial companies are happy to provide leaflets regarding complaining to the Ombudsman. The Ombudsman is not what I thought, they were are basically a mediator with no real powers. 

Will the Ombudsman bring this matter to the attention of the FCA or can I.

DullGreyGuy

Having been on both sides of the ombudsman their decisions at times can be baffling but thats the exception not the rule.

FS companies are happy to give out FOS leaflets because they are legally required to do so. You have to remember it costs them £750 if they win or lose and only the most vexatious of complaints get turned down without a fee.

The ombudsman provides statistics/trends to the FCA at regular intervals. Its naturally in their gift to highlight any particular cases but they deal with circa 250,000 per year and so only a minority are realistically flagged individually.

No one here has seen all the correspondence and most probably wouldnt want or have time to read it all. I strongly suspect that if your complaint had simply been "my policy states it increases by RPI but they have increased it by 35%" then the ombudsman would have looked at it and would have opined on it. That isnt to say they would have upheld it, that would depend on the exact terms, whats happened in the past etc. In this case though you went for the blunderbuss approach of complaining about a lot of things, probably in a lot of detail and therefore the ombudsman had to guess at what the couple of things that were the main points.

The FCA generally doesnt deal with customers directly with the exception of whistleblowers (eg reporting an unlicensed company selling insurance)

Ditzy_Mitzy

DullGreyGuy said:

Having been on both sides of the ombudsman their decisions at times can be baffling but thats the exception not the rule.

FS companies are happy to give out FOS leaflets because they are legally required to do so. You have to remember it costs them £750 if they win or lose and only the most vexatious of complaints get turned down without a fee.

The ombudsman provides statistics/trends to the FCA at regular intervals. Its naturally in their gift to highlight any particular cases but they deal with circa 250,000 per year and so only a minority are realistically flagged individually.

No one here has seen all the correspondence and most probably wouldnt want or have time to read it all. I strongly suspect that if your complaint had simply been "my policy states it increases by RPI but they have increased it by 35%" then the ombudsman would have looked at it and would have opined on it. That isnt to say they would have upheld it, that would depend on the exact terms, whats happened in the past etc. In this case though you went for the blunderbuss approach of complaining about a lot of things, probably in a lot of detail and therefore the ombudsman had to guess at what the couple of things that were the main points.

The FCA generally doesnt deal with customers directly with the exception of whistleblowers (eg reporting an unlicensed company selling insurance)

As I understand it, the crux of the matter is thus:

The OP purchased a unit purchasing Income Replacement Plan (IRP - my own acronym) in 1997, as the result of a conversation with a salesman employed by the IRP provider.  The OP hasn't specified whether the salesman was a financial adviser, but it probably wouldn't have mattered in those days in any case.  Anyway, the salesman stated the best case scenario vis a vis the IRP - that it would have a cash in value at the end of its life if no claims were made - and the OP took that at face value.  

The salesman or IRP firm, it doesn't matter, later got the OP to fill in an application form, which stated words to the effect of 'the performance of this policy may vary.  I, the undersigned [the OP] agree that is the case, and also agree that there may be no cash in value at the end of the term'.  The form was then placed on record by the IRP firm, and the policy was set up.  We shall call this clause the 'protecting clause'.

Fast forward to 2023, and the picture is somewhat different.  The IRP hasn't performed as expected, and the OP has elected to cease paying for it.  The upshot is that the remaining units have been sold to cover the outstanding premiums, so the OP has been left with nothing.  Not ideal, but have the IRP firm done anything wrong?

The OP alleges that they have, firstly by having the salesman state the best case in 1997 and secondly by providing illustrations during the life of the policy, which showed that it would have a positive value at the end of the term.  The IRP firm say they have not, on the basis that the application form signed by the OP confirmed that the policy may have no final cash value.  

The point about the illustrations can be discounted.  Illustrations are simply documents providing future performance figures based on hypothetical performance data; the format is 'if performance is x, profit will be y'.  To put it another way: it's no different to a punter looking at a bookie's odds and working out that he will get a £30 return on a £10 stake if Bow Bells Boy comes in at 3/1; there is nothing to suggest said horse will win, so it's all speculation.  To put it more succinctly: a financial illustration makes no guarantees and is ultimately not worth the paper it is written on.  

The Ombudsman have looked at the matter in the round and have made a decision regarding whether or not the alleged conversation between the OP and the salesman ought to take precedence over the protecting clause in the application form.  The Ombudsman's decision was that the protecting clause has primacy, thus confirming that the IRP firm have done nothing wrong.  The OP has appealed, but the Ombudsman have said the matter is closed as far as they are concerned.

There have also been separate complaints about customer service and complaints handling.  The first was upheld and resulted in a £250 ex-gratia payment to the OP.  The second was not upheld on the basis that it is not within either party's remit.  

The OP has followed the classic retail customer line of shooting a whole salvo of shells at the battleship IRP (or any other financial firm), in the hope that one hits.  A shell has hit, the customer service one, but was not actually the piece of ordnance that would have done the most damage.  

Present situation is one of deadlock.  The OP could try again, and try to be more succinct.  All the extraneous stuff could be trimmed from the complaint, but then both the IRP firm and the Ombudsman could cry double jeopardy.  Next step is the courts, but then the OP would need grounds to sue the IRP firm.  

DullGreyGuy

No, there is the one element they have been told they can go back on but their claim the increase in premiums was outside the terms of the contract has now been to an Ombudsman and so barred from a second bite of the cherry. 

The ombudsman was very clear about the Important Information stating the performance of the rest of the contract could be worse than the illustration. 

Manxman_in_exile

I know nothing about the buying or selling of financial products, but wouldn't the provider of this income protection plan have been under some sort of duty to inform the OP back in 2011 that the plan was failing?

As I understand it - and I may very well be wrong - isn't that the OP's main complaint, together with the fact(?) that statements between 2011 and 2022 didn't show the plan to be failing, thus preventing the OP from exercising an informed choice as to whether to continue with the plan?

(I accept we don't know what the OP's complaint to the FOS was, and that it might not have been clear exactly what the complaint was)