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PosSol ordered to repay commissions for lack of ongoing service

Positive Solutions has become the latest firm forced to repay commission by the Financial Ombudsman Service for not providing ongoing advice.

A FOS final decision from May ordered PosSol to repay commission after an adviser left the network and it did not continue offering advice.

In August, HSBC had to repay trail commission in full to a client after it did not provide ongoing pensions advice on request.

In February 2010, a PosSol adviser recommended Ms L use a Sipp held on a platform, with regular contributions and no lump-sum transfers.

He explained that his usual charge was £750 plus trail commission of 0.75 per cent a year and listed the services provided.

He then told Ms L his initial fees were more than expected and he could reduce the ongoing service charge to 0.5 per cent by using some of the initial commission to supplement the ongoing service.

In a subsequent email an illustration showed that commission of around £5,300 would be taken.

Ms L says the adviser told her he would provide an ongoing service for six or seven years.

The adviser left PosSol in July 2012. Ms L asked if she could receive ongoing advice from PosSol but was refused without further payment, so she complained.

PosSol rejected the complaint. It said there was an informal agreement for four years ongoing service covered by the initial commission and the ongoing service would only continue to be provided for free if Ms L kept up her contributions.

Ombudsman Roy Milne ordered a refund as he said the £5,300 commission paid by Ms L was much higher than the initial £750 charge and it was reasonable to expect six or seven years’ ongoing service.

He also ordered PosSol to pay £200 for stress and inconvenience caused to the complainant.

He wrote: “I uphold this complaint and direct Positive Solutions to refund the commission received less £750 and less 0.75 per cent of the plan value at year one and year two.

“Ms L has clearly been inconvenienced becauses she has not had access to advice and has paid for a service she has not received.”

PosSol was unavailable for comment.

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Comments

There are 16 comments at the moment, we would love to hear your opinion too.

  1. If the case was orphaned when the original adviser left PosSol, it should have been reallocated to another adviser who could take the reins.

  2. E L Wisty (an only twin) 17th October 2014 at 10:42 am

    These cases are indicative of a shift from an informal agreement to retain commissions in lieu of fees to a mutually enforceable contract. Consequently, commission is no longer a sinecure but merely a potential means of covering fees, which in turn need to be demonstrably earned. Otherwise, clients will increasingly be demanding payment of the amounts received.

    Many firms sought to achieve an RDR fudge, with limited real change to their business models. This is a wake call, but also a good opportunity for firms to move to fees proper and thus achieve a symbiotic relationship with their clients.

  3. The momentum builds…..

  4. Correct decision from FOS based on the article. Anyone got the case number just so we can have a quick look?

  5. This will become a nightmare for PosSol… They have had so many IFA’s leave and are no longer in the industry due to natural shrinkage and those not wanting to become qualified. These many 1,000’s of PosSol clients are not getting ongoing advice, yet PosSol continue to receive an income from product providers and not fulfilling client service expectations!

  6. Asset gatherers beware!!

  7. Refund commission? Wasn’t the commission paid by the provider out of their marketing budget? So the refund is to the provider?

  8. It seems to me that the issue is what you told the client renewal commission was for. If you agree a service for that money then don’t supply the service, then the client might have a case. If, however, you took renewal commission but did not promise anything in return (deferred initial) then the client shouldn’t have anything to complain about.
    As for this particular case, it looks dodgy (IMHO). Client cost rocket from £750 to £5,300 ( a nice little earner!) with some informal arrangement to “service the plan for a few years”. Who in PosSol allowed this? Then when the client asks for some service (presumably because she has had no contact from the departed adviser) they want more money. If the adviser, acting through PosSol, told the client something then that promise should be kept. If everyone had acted correctly and the departed adviser had stuck with the original deal, then the client could have stopped the 0.75% trail or directed it to someone who did care. It strikes me that the adviser got what he could and then got out – PosSol should have honoured the agreement. There still appears to be 0.5% to give to another adviser within PosSol or am I mistaken?

  9. @Stan – I am pretty much with Ken H on this case.

  10. Reading the decision the real issue is down to PosSol not having a proper agreement in place with the client. The result doesn’t seem unreasonable but I don’t think it sets any precedents about refunding commission in general either.

    Case number is DRN6982562

  11. I commented on the HSBC matter yesterday and my response is the same – good!
    Four years ago, one of the good guys at PosSol approached me via a DFM. He asked me if I wanted to buy those of his client base on which trail was paid, before he retired. We agreed terms and those clients have received the service they paid for. He said to me then, that PosSol might well just trouser the trail and do nothing for it…

  12. I’d say Ken is spot on. Old-fashioned ‘renewal’ commission was paid to reflect continuing contributions – you could deem that to be “ongoing initial’. What we know as trail commission on unit trusts/OEICs was introduced in the late 1980s to encourage advisers to do regular contribution PEP business and keep the money with the fund group. It spread to ordinary purchases; being unusual, initially it worked. Many groups steadfastly refused to pay trail, but lost business accordingly. It soon became the norm.

    Trail commission has never had anything to do with service. It still doesn’t. It’s an arrangement between the fund group and the adviser. Advisers who are embarrassed about it might justify it by associating it with an ongoing service; however naively pasting a commission model into an adviser’s fee model changes the dynamic. An ongoing fee has to be explained, if not justified – what does the client get in return for that payment? If it’s nothing, then say so. If it’s in exchange for ongoing service, make sure it’s a real service that accommodates a client’s particular need for involvement and specific review needs (eg significant change in circumstances, active bespoke portfolio management etc). 75bps on a £250k portfolio is £1875. At £250 an hour that’s equivalent to 7.5 hours of meetings with the client. To what end and benefit?

  13. A good FOS decision. Of course you can’t help yourself to trail out of someone’s pension and then refuse to provide any service. It’s firms like this that result in such appalling survey figures when the public are asked about trust in IFA’s.

    Firms that look after their clients will continue to sleep soundly. Firms that don’t are going to find life very expensive.

  14. If it is a refund to the client of charges/commission that becomes tax deductible doesn’t it? I agree that redress should occur, but surely the redress should be by way of increased unit allocation into her pension pot… from where the money was extracted…

  15. Quite right Victor m

  16. The decision makes interesting reading http://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=44103 and the confusion which arose is one of the reasons why we took the decision to record all client meetings in the hope we only get hung drawn and quartered if we haven’t done what we said we would rather than what the consumer thinks was said/agreed years later. That way paperwork AND words actually said should match up and we can prove it.

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