ATR Question

GaryH_3

Hi

I was sold a Commercial Union endowment (who are now Norwich Union) by a Norwich and Peterborough tied rep in 98.

The fact-find used the following question: "When addressing the solutions to fulfill your current priorities, which one of the following statements best describes your feelings towrds future investments:"

1: “I am not prepared to take any risks with my capital and realise that this may mean sacrificing potential growth in real terms.”

2 : “I am prepared to take a small risk with my capital to improve the potential returns”.

(3, 4, and 4 involved reasonable to substantial risk.)

My "Client ATR" was recorded as 2, and my "Client Priority" as 1.

Can anyone shed any light on what these actually mean. I have been thru the mill with my complaint at Norwich Union, and now the FOS.

Any advice most welcome

GaryH

EdInvestor

Hi Gary

ATR is "attitude to risk" I assume.

If your ATR was recorded as 2, that is, you were willing to take some risk with your money to improve returns, then it makes it more difficult to prove you were missold the endowment on the basis that it was unsuitable on risk grounds. ATR (2) would be classified as a Cautious investor, and With-profits products like most endowments were deemed appropriate for Cautious types.

[They weren't of course in the event, but that's not the point, the regulator would have told the IFA they were, and thus the sale would have been correct at the time.]

GaryH_3

Thanks Ed

But what about my "Priority" being recorded as a 1, i.e “I am not prepared to take any risks with my capital and realise that this may mean sacrificing potential growth in real terms.”

GaryH

dunstonh

If your ATR was recorded as 2, that is, you were willing to take some risk with your money to improve returns, then it makes it more difficult to prove you were missold the endowment on the basis that it was unsuitable on risk grounds. ATR (2) would be classified as a Cautious investor, and With-profits products like most endowments were deemed appropriate for Cautious types.

With profits with MVRs would be 3, without would be 2. However, its upto the firm in question to decide where they place funds in the risk ratings.

But what about my "Priority" being recorded as a 1, i.e “I am not prepared to take any risks with my capital and realise that this may mean sacrificing potential growth in real terms.”

Risk 1 is rarely selected by anyone because in real life, no-one is in a risk 1 situation as far as their life goes. However, for things that are goal driven, then risk 1 can be applicable. For example, you can be risk 1 for a mortgage but risk 5 for pension.

In the past, some companies ascertained a risk profile for you as a person and not for the particular transaction. I believe this is where many have had problems when it comes to risk. Also, the old way of ascertaining risk was a little basic compared to the ways that are available today.

You say risk rating 3,4,5 are too high but you will probably find your pension is around risk rating 3 if you havent chosen funds differently (and are not in a final salary occ scheme). You can also have funds invested in risk rating 5 and still have a portfolio that averages out to risk rating 2.

Anyway, thats getting off subject. Back to risk, it is saying you are cautious but accept some risk. Priority 1 means that this area of need (mortgages) was your main priority for seeking advice. It is a requirement (in not so many words) to offer full advice in all areas. Most people prefer focused advice and limit it to one or two areas. These areas are prioritised. The priority is not a requirement but some advice processes use it. Depending on the advice process, it can be advisor priority or client priority.

GaryH_3

Hey Dunston

I think you assume a lot. When I answered the question about future investments I answered about "future investments", not about my mortgage.

I was asked what my priority was, I replied “I am not prepared to take any risks with my capital and realise that this may mean sacrificing potential growth in real terms” because my priority was securing and paying off my mortgage.

dunstonh

Perhaps you should explain it better then as priority and attitude to risk normally mean two different things. Your first post indicated them as two different things as well. I also suggest you read my post again as I did mention that some look at goal specific risk and others look at overall risk.

When you answered about future investments then you could easily be talking about the mortgage because at that point the endowment or repayment mortgage was something that was going to start in the future. You are not looking at past investments or current investments but what is going to be done in the future.

defender_of_the_weak

It is not enough to merely tick a box on a CU fact find. There has to be substantive evidence that the tick matches your circumstances (Financial Ombudsman Newsletter last year). Did you have any other investments beyond deposits in bank/building society that would suggest you were willing to take a risk with this repayment.

It should also be pointed out that the sales training of CU and its representatives you could easily end up with with the rep ticking anything, it was just not considered so important at the time of the sale.

GaryH_3

Ah DEFENDEROFTHEWEAK, could you give expand on your thoughts about the training of CU reps, particularly in 98 ?

Which FOS newsletter are you eluding to? I have read so many of things I am going mad!

.......if only the FOS would be as conscientious and read all of my submissions!!!

DUNSTONH I would explain it better, but I am merely quoting from the fact-find, which of course with CU in 98 was compiled by the expert on their laptop computer, the customer only got to sign a "summary and declarations" page.

defender_of_the_weak

Let me give you an example.
Are you the type of person who keeps their money under the mattress? er no.
If you had a lot of money would you go out and buy shares that can go up and down, or crash as they did in the eighties. er no.
Do you have a company or private that invests some of its money in shares? dunno, I suppose so
Would you invest in something where the growth is protected each year so that the value cannot fall, er possibly.
Then based upon what you have told me we would classify you as a cautious/balanced investor.

One key question, where is your policy invested, are you in with profits funds or something else such as a managed fund.

I am afraid I cannot remember which copy of Ombudsman news it may even have been in 2003, but this gist of the comment is that you cannot be a balanced investor without something else to balance with. likewise, if you had a series of policies invested in with profits or managed funds at the time of the sale it would be difficult to say that the sale was inappropriate

GaryH_3

Defender Of The Week

Thanks, I think the copy of Ombudsman News you were referring to is case 25/02 in the Feb 03 copy. I am pretty sure mine is a with-profits one.

Am I right in thinking that the fact-find should show all your salary etc? How should they show outgoings?

Also, is there any requirement for them to take into account the future maturity of any existing (mis-sold!!) endowments when setting the term of a new policy?

GaryH

dunstonh

Am I right in thinking that the fact-find should show all your salary etc? How should they show outgoings?

The FSA say you should know your client. They do not say what the content of the factfind should be. Over the years different companies have interpreted the guidelines to include things that they believe should be in the factfind.

Salary is a fairly important thing to complete because without that and a summary of outgoings (which can just be a total outgoings figure), how can you confirm affordability? Failure to complete salary ought to be coupled with a statement on the suitability report (reason why letter in those days) declaring non disclosure of information and what impact that may have on the advice.

Completion of a record of existing plans is not compulsary but failure to do so could lead to poor advice and make it harder to defend a mis-sale complaint. Without knowing the details of what you already have if would be hard to recommend a suitable product to meet the shortfalls.