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Advisers slam ‘massive regulatory failure’ exposed by FCA closed-book review

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The FCA’s explosive review into closed-book providers has exposed the “massive failure of the treating customers fairly regime”, say advisers.

Advisers say providers have finally been held “bang to rights” as the FCA investigates six firms for widespread failings around how they treat closed-book customers.

Following the review six out of 11 providers have been referred to enforcement over exit and paid-up charges, which advisers say shows treating customers fairly rules have failed customers.

Two providers – Old Mutual and Abbey Life – will also be investigated over other broader failings uncovered by the review.

The review covered products that closed before 2000 while the follow-up will include firms’ behavour after 2008 when the FSA updated guidance on treating customers fairly.

Rowley Turton director Scott Gallacher says: “Given that we are having to be whiter than white, I do not think it’s unfair to ask pension providers to do the same thing.

“This is a massive failure of the whole TCF regime, and the FCA must bear some blame too.”

Page Russell director Tim Page says: “The biggest issue is disclosure and in that sense they are bang to rights. It’s a classic case – like how Al Capone was done for tax evasion, not racketeering.

“Every IFA in the land will have been frustrated by having clients stuck suffering massive exit penalties and poor charges in the meantime. The insurers have have a good run, they’ve been farming this money for donkey’s years. They knew it was not going to last but now various initiatives are forcing them to change.”

Fairey Associates managing director Ed Fairey says firms cannot excuse their behaviour by claiming high charges reflected normal rates when contracts were written.

He says: “The contract law point is a moot point. All providers set out charges at inception but they also reserve the right to change their charges at any time. They all give themselves that flexibility, if they have the will to remove the exit charge then of course they can do it – the fact they don’t want to speak volumes for those businesses.”

However, the ABI claims the review shows there is “no systemic intention to take advantage of customers”.

ABI director of regulation Hugh Savill says: “We are pleased that the FCA has found no evidence of any systemic intention to take advantage of customers in older closed book products. However, this report highlights that more needs to be done to improve governance of and communication with customers with older style products. We will be discussing with members and the regulator ways to ensure that this happens.”

The review covered products sold pre-2000 by 11 firms who hold £153bn of savings in closed-book products across 9.4 million customers.


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. “………Fairey Associates managing director Ed Fairey says firms cannot excuse their behaviour by claiming high charges reflected normal rates when contracts were written……” Excuse me but yes they certainly can and so they certainly should. I am probably going be in the minority for my comments and believe me I am no lover of some of the providers in question. However as he goes on to say “He says: “The contract law point is a moot point….”. Sorry it is not a moot point, it is the entire point. The law is the law and no matter how we feel about this may have disadvantaged some clients, not adhering to the laws in force at the time is a very dangerous route to go down. It sets an extremely dangerous precedent for the FCA to be able to literally do as it pleases irrespective of what the law states and that is not a place to be. This precedent should not be set as a point of principle. We cannot have a Regulator riding rough shot over the law of the land irrespective of how much we would like to see this for our clients benefit, it will be the thin end of the wedge in years to come.

    Before long they will agree for the FOS to starting to find in favour of complainant clients for advice given because the adviser did not properly take into account the client’s capacity for loss on cases written long before the FCA even dreamed up the phrase and its definition.

    How many of us advisers out there would have taken CFL into account at the time of doing business for clients, 10, 15 or 20 years ago? I would say none as it hadn’t been invented. I am sure there will no doubt some who come back and say “I have been doing that is guise for the 20 or 30 years of being an IFA” ). My response to that is “I am sorry but you are talking bollox” We will have said to many clients to invest x,y or z percentage of their available capital into bonds, PEPS, UT IAS’s etc but that is not the same thing. Its not even in the same postcode.

    We are on a very slippery slope with this and it is going to mushroom into something nasty and very horrible. Mark my humble opinion

    • Much as I don’t want to agree with you Marty as I don’t like the penalties, I am afraid I agree with you. A contract is a contract, the Law is the law and we have judge and jury, not Judge Dread.

  2. Aren’t St James Place still imposing massive exit penalties on the products they sell now? How is that treating customers fairly?

  3. Lindsay Lockett 3rd March 2016 at 2:37 pm

    So will this mean those clients that have paid the exit fees in the past will be able to reclaim them from their old provider if the FCA has uncovered issues ?

  4. Julian Stevens 3rd March 2016 at 8:03 pm

    Isn’t the correct term BANGED to rights?

    Simon Hall ~ SJP (like HL) appear to have managed to secure some sort of highly questionable exemption from the FCA’s rules on exit charges, despite them being supposed to apply to all providers uniformly. Of what value are rules of any sort if certain parties are allowed to ignore them?

  5. seems that the FCA want it all ways.

    Perhaps HMG should be sued. After all, they allowed providers to treat their customers unfairly. Seems a clear failure to regulate in line with future requirements.

  6. Wow Mr Fairey had better hope his clients don’t choose to play fast and loose with any contracts he structures with them

  7. The issue for me is that the providers did nothing. High charges and poor funds and at no time did the providers think that they should reduce their charges or increase the options available to the client. What was worse, the transfer values out were fiddled to keep clients locked in or at best, allow the provider to make money should they lose the investment. Remember the principles of TCF – no unreasonable barriers etc.
    Of course the FSA did nothing either. And like Lindsay I am concerned that some clients could come back and ask for unreasonable exit charges to be refunded. We have clients where we were unable to transfer because the exit charges on AL plans were too high.
    Perhaps though, a better approach is to draw a line in the sand and move on. We cannot keep looking backwards. But then FOS do…..

  8. Stephen Kadwell 4th March 2016 at 1:17 pm

    If the argument is that providers should not be expected to amend contracts then why did they remove entitlement to GARs and guaranteed unit price increases on subsequent contributions in the late 80s early 90s? Because they saw which way the wind was blowing.

  9. Life Companies have abused their position and let down Clients over many years by their high charges, high commission payments, lack of advising clients to check that their asset diversification is still appropriate and extremely poor ‘your call is important’ Customer service levels. I now have a Client who is 6 months away from NRD and would like to take advantage of the new pension freedoms. However, attempting to transfer from the ‘rising from the flames’ consolidator life company incurs a 35%, yes 35%, MVR penalty. If I had a 25 year mortgage and wished to end it after 24 ½ years and the Bank or BS charged me 35% everybody would be up in arms! So, Baroness Altman, George Osborne, David Cameron, your Consumers are ‘taking a hell of a beating!’ Please legislate that any client within 1 year of their NRD may take/transfer their pension to a better place with NO penalties. Also the same for Protected Tax Free cash else these clients are disadvantaged in ‘pension freedom’ terms.

  10. I’m not entirely against the odd bit of ‘Life Co bashing’ – sometimes it can be deserved – but, the issue presented here seems to be one that required a provider of the product; and a party to recommend the product. Not to mention that exit fees tend to come hand-in-hand with upfront commission and allocation rates. Perhaps the argument could be more along the lines of: 1) Providers assumed products would ensure the lifetime of the client and required that to be the case for profitability; 2) yesterday’s adviser population benefited from recommending these products; 3) both parts of the industry moved on and now customers are left in a less than desirable position.
    It’s unlikely the advisers who initiated sales will get their cheque books out to contribute, so that points the realistic finger back at providers, who have probably made enough to profit from these books. And, if they haven’t, opportunities to reduce costs or sell books have been exercised by others.
    Perhaps a joint solution could be ‘upgrading’ customers, where advisers (for advised customers) agree to retain the customer within a newer (and better) product from the same Life Co if it were in the interests of the customer to do so. Then the rationale behind exit penalties isn’t as applicable. It has to be admitted, as an industry, we are pretty good at making a mess. I suppose when you have products and relationships that last decades, it is inevitable the world moves on many times as products remain static.

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