Following my letter in the issue of October 30, 2003, I have received a number of responses from IFAs whose experiences would appear to reflect those of my client IFA. Inconsistency, inaccuracy and subjectivity would not appear to be limited to the decisions of the Financial Ombudsman Service in relation to the complaints against my client.
In one complaint against my client, however, the FOS has refined this to an art form. It has actually upheld a complaint against my client because the customer rejected the very advice which the FOS itself subsequently indicated in its adjudication ought to have been given.
The customer sought advice on a mismatch between his mortgage and his life insurance. This mortgage was for £60,000 over a 15-year term and had been taken out before life cover was considered. Other than death-in-service cover, the customer and his wife, who earned about 10 per cent of her husband's total income, had little other protection and their expenditure regularly exceeded their joint income by approximately 5 per cent.
My client initially advised a term policy for each of the customer and his wife in the amount of the mortgage with waiver of premium, critical-illness cover and so on. The customer flatly rejected this on the basis that there could be no return for his premium invested which, together with the issue of cost, were the main criteria on which the customer would consider which product to take. After considering various permutations of policy term, content and premium – all with illustrations – the customer finally selected a 25-year low-start endowment but refused to incorporate critical illness and waiver of premium. The illustrations demonstrated it would clear the entire mortgage in the event of death during the term while the cash value of the plan at 15 years would at least provide a refund of some of the premium.
This was not my client's preferred option, nor was it his initial recommendation.
Notwithstanding the customer then paying my client a regular monthly retainer to review his financial affairs, which he did for a period of over two years, the customer eventually complained. The complaint put the issues in reverse order. He complained that the mortgage he had been sold in respect of the 25-year policy was over a 15-year loan term. Despite the chronology of events being crystal clear, the FOS has ignored representations that the fundamental basis of the complaint is inaccurate.
We have argued forcibly, initially with the client's network and now with the FOS direct, that the customer got what he selected as opposed to what my client recommended.
Notwithstanding that, the adjudication finds against my client for having sold the customer a 25-year endowment for the purposes of a 15-year mortgage, observing that what should have been recommended was a term policy. Which takes me back to where I started. That is precisely what my client recommended the customer should take but which the customer rejected.
My client has asked me how he can protect himself against this type of situation and, sadly, it is not a question which I can answer with any ease or confidence of success. My client is being penalised by the FOS, not for giving bad advice but for the customer rejecting good advice to take a term policy, being the very advice which the FOS recommends ought to have been given.
The FOS cannot see or is ignoring the fact that the basis of the complaint has put the cart before the horse. It appears to have adopted the principle that the IFA is responsible not only for the advice which he gives to a customer but also for the customer's own decision to reject it and by so doing has absolved the customer of any responsibility for his own actions.
The only solution which
I can suggest is a judicial review but, at a possible cost of £25,000 or whatever it costs in the English courts, he simply cannot afford that remedy so he is stuck with an unjust decision. Refusing to implement a finding, of course, lays him open to disciplinary proceedings.
From my experience of dealing with these complaints, it appears to me that IFAs have no real professional protection and are open to the uncontrolled decision making of the FOS. In a political context, that would be defined as tyranny.
I hear tell of one IFA who takes a very bullish approach.
It is not a member of a network, issues its own FMDLs and, when advising its clients of the right to complain to the FOS, makes clear that if a complaint is made but is unsuccessful, it will bill the customer a hefty hourly fee of up to £250.
Over and beyond that, I have suggested to my client that he and like-minded IFAs should form a defence union, much the same as the Legal Defence Union in Scotland which, for a relatively low premium, vigorously and aggressively defends member solicitors against complaints to the Law Society of Scotland and to the discipline tribunal in serious cases.
The quality of complaints' handling and the justice of decisions handed down are very largely dependent on the availability and the quality of defence to such complaints. The weaker the general level of defence of these complaints, the more likely in my view that the FOS will run roughshod over the IFA.
It is why we have a vigorously independent legal profession. Without it, we would have a police state.
If any of your IFA readers would be interested in learning more about the idea of a defence union, then please contact me.
Drummond Miller WS, Solicitors,
65 Bath Street,
Glasgow G2 2DD