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IFAs facing new wave of with-profits complaints

The IFA sector could face a new spate of with-profits complaints after the Financial Ombudsman Service fined IFAs for failing to tell customers about MVAs that were being applied to existing policyholders when they sold policies, according to Aifa.

The concerns stem from a series of recent cases where the FOS upheld complaints against IFAs despite the fact that they had clearly warned the client of the possibility of an MVA being applied if they withdrew some or all of the fund before the end of the bond’s term.

Aifa deputy director general Fay Goddard believes that the cases set a dangerous precedent and could prompt a flood of unreasonable complaints from with-profits policyholders.

She says as long as the adv-iser tells the client of the possibility of an MVA in the future, the existence of an MVA in another part of the fund at the point of sale is irrelevant. She says the FOS is misinterpreting MVAs as a sign of the fund’s weak- ness rather than a measure to protect consumers against ailing market conditions.

But FOS spokeswoman Emma Parker says it is more likely to crack down on IFAs in cases where the client has more short- term investment horizons with few other sources of income as they are more likely to withdraw money before the end of the bond’s term and incur an MVA.

She says: “Firms often argue that an MVA may be incurred in exceptional circumstances. But if an MVA is already applying under these ‘exceptional’ circumstances and affecting other customers, the investor would want to know about it.”

But Goddard says: “This sets a dangerous precedent and could generate more complaints. If this is regarded as material disclosure failure, then what else can be regarded as such?”


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Correspondent’s week

This week by freelance finance journalist Stephen Spurdon.


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