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Pilot put on wrong course

I don’t often make a point of coming back to discuss the same subject in consecutive weeks so I confess to feeling slightly uncomfortable this week as I write this column.

But somehow, I simply cannot let go of the issue of Heather Moor & Edgecomb and the firm’s long-running battle against the Financial Ombudsman Service.

Last week, I wrote how the Court of Appeal found in favour of the FOS over endowment-related complaints for which HME had been landed with a case fee bill of £1,440.

The fact is that this particular Court of Appeal ruling is not the only one that HME have been involved in. I owe thanks to Jonathan Purle, compliance director at London-based Intethic & Co, for pointing two other significant cases out to me.

The first one involves a ruling by the Financial Services and Markets Tribunal in May this year that HME should pay £6,349 compensation to a couple, the Crofts, as initially ordered by the FOS in October 2003. The company was given 28 days to pay the money or be struck off.

I do not want to go into detail on this case, other than to point out that HME used the legal process for almost five years to repeatedly refuse to pay a compensation order made by the FOS. But HME’s obstructionism is shocking and I encourage anyone to read the judgment.

Far worse is another devastating Court of Appeal ruling, in which HME lost its appeal against a FOS award of £100,000 compensation to a former client transferred out of a final-salary occupational scheme into an s32 pension.

Frankly, I have rarely seen a case where it is more clear cut that a client was given poor advice – and it all happened well after all the publicity over the pension misselling scandal should have taught every IFA a lesson into the do’s and don’ts of pension transfers.

In 1999, Simon Lodge was a 55-year-old British Airways pilot, approaching compulsory retirement but able to continue working with another airline until 60. He was married with two kids.

In June of that year, Brian Pickering, a director at HME, wrote to Mr Lodge recommending the transfer. His illustration was based on 9 per cent annual growth. In January 1999, the regulator had set new, lower assumed growth rates of 5, 7 and 9 per cent.

But Brian Pickering told Mr Lodge that “his pension fund would have gone up to somewhere around £730,000 minimum based on 9 per cent per annum growth which I believe is very modest (12 per cent would produce £840,000)”.

The letter continued: “I would consider it illogical not to take up the [transfer] option…Being my usual frank and blunt self, I cannot see that there is any sound reason not to elect for the Section 32 Buy Out Plan. ….We are in no way having to rely on a very heavy fund performance to achieve what …is achievable.”

HME robustly maintained this view even after Simon Lodge consulted another IFA, whose advice was that the projections breached regulatory guidance and the assumed growth rate was “anything but modest”.

Of course, by mid-2003, it was clear that this so-called “modest” growth assumption was completely unreal. Mr Lodge complained to the ombudsman in October 2003.

The FOS found that although he had said he was only prepared to accept a medium risk, Simon Lodge’s money had been placed in funds which even HME did not class as medium risk.

No full comparison was made between the benefits surrendered in the event of transfer and the likely cost (and risks involved) of buying them back with an annuity. In fact, because Simon Lodge’s wife was much younger, the couple’s annuity purchase cost would have been much more expensive.

Most surprisingly, HME did not provide Simon Lodge with a projection of future benefits if he were to defer taking his British Airways’ pension until he was 60. In fact, doing so would have massively uplifted its value.

In its defence, HME provided a statement from a Mr Anthony Marston-Smith, who claimed “there was a respectable school of thought amongst investment advisers in 1999 that 9 per cent nominal growth on a pension fund would be modest.” Also, that there was “a respectable school of thought amongst investment advisers in November 2000 which would have considered it appropriate to quote future growth at 9 per cent.”

My research into Marston-Smith’s qualifications has found no record of investment expertise or employment with a major fund manager. I have, however, discovered that he worked for HME as a pension transfer specialist between 2005 and 2007 and as an IFA in Chippenham before that.

Hardly surprisingly, the Court of Appeal has once more found against Heather Moor & Edgecomb.

Yet throughout all this time, they have been championed by people like Evan Owen at the IFA Defence Union, who went so far as to gloatingly post a picture of the legal costs’ cheque received by HME from an earlier – and ultimately unsuccessful – court case.

A few weeks ago, Evan Owen claimed in Money Marketing that the IFADU are not “a bunch of unprofessional nutters”. Yet those who chose to support HME not only backed the wrong horse but in doing so they have revealed more of themselves, their unprofessionalism and total contempt for consumers and their rights than they realise.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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