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Material witnesses

If an IFA uses a provider’s marketing material to endorse and promote a product and it is later found to be flawed, who should pay compensation if a client makes a claim for poor advice?

Where claims are made via the Financial Ombudsman Service, in nine out of 10 cases, the IFA is found at fault.

Technology & Technical founder Kim North says with 30,000 or so products on the market, IFAs cannot be expected to research further into the products they sell beyond the information in the marketing literature and disclosure documents.

North says: “The onus is on the provider to take responsibility for the marketing literature. With such technical products and complex fund descriptions, the IFA has got to believe what they read about the structure of the product. The IFA cannot question the scope of every single product out there.”

Some believe that IFAs need to accept some responsibility for products on which they reap a commission.

Bestinvest business development manager Justin Modray says: “The IFA should be prepared to take full responsibility for any products they are selling. That might sound rather Draconian and not very practical but the adviser has to be prepared to form their own view.”

Where an IFA is held accountable by the ombudsman and wants to pursue a case against the product provider, a clear channel for doing so seems to be lacking.

City law firm Fishburns partner Andrew Davis says: “Often, it goes to the ombudsman if there is a complaint against the IFA. But if the IFA thinks the fault is with the provider and needs to take legal proceedings, there is nothing in place for the adviser short of going to court, which is expensive and time-consuming. This process is cumbersome and could be reformed. But I think the FOS does appreciate this.”

But Modray fears that if a system were in place for IFAs to take issue with providers regarding responsibility for their marketing literature, it might be subject to abuse.

He says: “There is not a straightforward route for IFAs to lodge a complaint against providers, which is a great idea in theory. However, in practice, I think we might see many IFAs who take it as an oppor- tunity to pass the buck.”

Standard Life managing director, marketing, Simon Douglas says there is a level of shared responsibility. Even in cases where no advice was given, such as in the case of direct mail-led sales, he says if the adviser takes commission, that warrants an amount of accountability for that product.

Douglas says: “If commission is taken, the IFA has to have a certain level of responsibility for the product sold. It is the IFA’s job to match the correct product to the needs of the customer. Although IFAs sometimes rely on the product brochure for the information, they need to be aware of all the risks and ultimately make these clear to the customer.”

The FOS says there is ambiguity in many cases over the product literature and whether it is seen as purely information or whether it is classed as advice.

Spokeswoman Emma Parker says: “If a mailing is targeted, it is personalised to the degree that the customer believes they were sent the information because it was particularly suitable for them. This is often where we would see it classed as advice. In these cases, it is usually providers who are responsible.”

Parker says the difficulty lies in assessing the degree of input, or liability, of each party involved in the process.

Egg Design director and head of marketing Martin Fox says: “With nearly all promotional material, the responsibility lies with the provider. But if the FSA says it is sound, the client should have the option to get out of the product there and then if it turns out to no longer be suitable. Retrospective claims, though, are dangerous.”

The FSA may be starting to accept that responsibility should be shared. In last week’s speech at the FSA annual asset management conference, chief executive John Tiner said the regulator is placing increasing emphasis on product marketing. It is boosting its resources to review advertisements and marketing material and seeking out evidence of good and poor practice, with a view to promoting the former and stamping out the latter.

Tiner says: “Our financial promotions department considers whether marketing material represents a clear, concise and balanced communication of risks and rewards to consumers.”

Tiner says: “We will review the extent to which product providers can abrogate their responsibility for products, particularly when their performance may be highly susceptible to variability in different market environments.”

Skandia PR manager Charlie Musson says the company works carefully with consumers, advisers and the FSA to ensure it adheres to the Treating Customers Fairly initiative and gives a fair and balanced view of product information.

Musson says: “Providers should be taking on as much responsibility as they possibly can, being ultimately liable for ensuring the product information is easy to understand, but advisers are the ones making the sale and are responsible for ensuring suitability for the client.

“Providers need to be aware of the problems advisers face and do everything they can to help IFAs do their job properly.”

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