Experts are warning the decision by the Financial Ombudsman Service to order HSBC to repay trail commission to a client who did not receive ongoing advice could open a “huge can of worms” for advisers.
The bank was ordered to repay the 0.5 per cent trail commission and £350 for stress and inconvenience in a FOS final decision notice issued in August but published only earlier this week.
Mr J had transferred his pension to HSBC in August 2006 in unsecured drawdown. He took his tax-free cash between 2006 and 2008 and left the rest invested.
In 2009, Mr J contacted the bank to ask for advice about withdrawals but complained of poor service and an inability to get a review.
In April 2013, HSBC acknowledged it had not met expectations. In December it offered to refund all trail commission from 2009 – when the tax-free payments stopped – plus a gesture for stress and inconvenience. Mr J rejected the offer as derisory and demanded a full refund of trail.
The FOS has instructed HSBC to repay all trail but it can retain its initial adviser commission for setting up the transfer.
Ombudsman David Ashley says HSBC did not provide an “appropriate” level of service.
Pilot Financial Planning director Ian Thomas says: “This could open a huge can of warms.
“It goes well beyond the idea of a sunset clause; this is actually rewriting history and saying you should have been providing ongoing advice even if it wasn’t explicit before. That could be huge for IFAs as well as banks. If I was a financial services lawyer, I would be rubbing my hands right now.”
Syndaxi Chartered Fimnancial Planners managing director Robert Reid says: “A lot of firms bought books and I’m not convinced they are really managing them, which is an issue. Some say they are not getting enough money but they should just tell people they are not managing it. In the HSBC case, they implied they were looking after the pension when they were not.
“The amount they are getting from trail isn’t enough to cover the cost of the review so they need either to charge a bit more or send the money back.”
A HSBC spokesman says: “The circumstances surrounding this case are very specific, but as always with Fos decisions, we will review our portfolio to identify if there are any other customers in the same situation.”
Pete Matthew, managing director, Jacksons Wealth Management
It’s a slightly worrying precedent because the industry has gone through a revolution. I have heard lots of people say they took less upfront commission but put the rest in trail. The problem is, clients don’t see it that way and it is quite a weak argument.