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Here come Serps’ chasers

A case where Pru paid on contracting out may be the start of a complaint wave.

If financial advisers thought they were about to get some respite from the ombudsman, they may want to think again.

The news that Prudential has lost a case over a missold contracted-out personal pension could have serious ramifications for those who advised people to contract out of Serps in the late 1980s and early 1990s.

It emerged that pensioner Michael Ford of Stroud, Gloucestershire, had won his 18-month battle to get compensation from the Pru. He took his case to the FOS after discovering that his contracted-out private pension produced an income that was worth 200 a year less than he would have received from Serps.

Prudential initially dismissed the claim, arguing that the risks of contracting out were fully explained at the time. But following an initial ombudsman ruling in Ford’s favour, the Pru agreed to pay the shortfall in full.

The Pru is playing down the implications and insists there is not a systemic problem, It claims it has received just 290 complaints (it has 440,000 contracted-out customers) over the past 18 months but there are several reasons why advisers should be concerned.

First, Ford was represented by a former Pru salesman who helped him take the case to the FOS. Bob Brown reckons that he and his sales reps were not instructed to conduct a detailed fact-find before recommending customers to contract out. They did not evaluate attitude to risk, nor did they provide proper illustrations. The Pru dismisses the claims as “total nonsense” and that sales processes were “robust”, although it is worth bearing in mind that in 1997 the FSA said of the Pru during the pension misselling review that it had “displayed a deep-seated and long standing failure in management” and “a cultural disposition against compliance”.

Brown has made it clear that he is not going to rest on this issue and says he has other cases up his sleeve.

That is a problem for the Pru. What is, perhaps, more pertinent for the wider industry is that Which?, the consumer champion, is on board and that Brown runs a complaint-handling firm.

A few years ago, Which? whipped the endowment saga into a frenzy with claims that five million homebuyers were wrongly sold an endowment. Such was the ferocity of the campaign that the FSA dubbed it “hysterical” and although the regulator rejected the call for a full-scale review, homeowners soon latched on that they could be in line for compensation.

Whether or not you agree with the methods of Which?, it does have some clout. It has met with the FSA after describing the Ford v Pru finding as a “landmark case” and says there is evidence to suggest many people have been similarly misadvised. One Which? policy researcher has already been quoted in a national newspaper warning that “this problem could be as significant as endowment misselling”.

Many more quotes like that and people might begin to wonder if they were missold. What’s more, you can bet that the FOS decision and remark by Which? has caught the attention of endowment complaint-handlers. After all, the endowment saga has a finite timeframe, thanks to time-barring. Sooner or later, these businesses will either have to close or look for other means to bring in revenue. Serps’ misselling could be their answer.

As it stands, the FOS gets around 10 complaints on contracting out every month, which is minuscule compared with endowments. It adds that around 40 per cent of cases are found in favour of the consumer, which is line with other disputes it tackles.

There are plenty of people within the financial services industry who are angry with the growing compensation culture, complaint-handlers and the workings of the ombudsman. Expect that anger to grow as providers and advisers are once again forced to delve into their past to wipe the dust from customer and client files. Money Marketing50 Poland Street, London W1F 7AX


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