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Endowment ruling means IFAs face redress claims

IFAs face compensation cla-ims from disgruntled end-owment policyholders even if the client has not suffered a financial loss, following a recent ruling by the Financial Ombudsman Service.

It follows a decision han-ded down by the FOS last week, which ruled that a client of IFA Home Buyers&#39 Advi-sory Service had been missold a Norwich Union mortgage endowment.

The award was made des-pite the fact the client was guaranteed an annual rate of return of 6 per cent by NU, the level that FSA guidance says should be sufficient to meet its maturity target and for a green letter to be sent out.

The ruling means IFAs can still be challenged despite products meeting FSA minimum standards.

It also means that “endowment promises” from prov-iders guaranteeing rates of return mean nothing if the Ombudsman still feels the original advice given was unsuitable. Other firms offering such promises include Standard Life and AMP.

The ombudsman says whether or not there is a shortfall in the endowment is irrelevant because it is the original advice that is important, which in this case was unsuitable because it did not take into consideration the client&#39s attitude to risk.

Financial Ombudsman Service head of communications David Cresswell says: “When we are deciding whe-ther or not to uphold a mortgage endowment complaint our focus is on the quality of the advice originally given.”

A Home Buyers&#39 Advisory Service spokesman says: “This is a cloud cuckoo land judgement, with serious flaws in the reasoning.

“Left unchallenged, it could have adverse consequences for borrowers as well as responsible IFAs and insurers.”


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