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Rough justice?

Ivan Massow’s claims that Sesame has failed to back him adequatley over claims from gay clients have implications for the whole industry, say Paul McMillan.

Former IFA Ivan Massow claims Sesame should be backing him against mortgage endowment and FSAVC misselling complaints from the early 1990s because the homophobic nature of the insurance industry at the time meant they were the only option for gay clients.

He says Sesame settled over 90,000 of claims against him last month alone and he faces bankruptcy, with future claims estimated to cost him hundreds of thousands of pounds. Massow plans to contest the claims in court.

Beachcroft Wansbroughs managing director Richard Hobbs says the verdict will set a precedent for future cases, with implications far wider than cases relating to gay men but affecting what can and cannot be taken into account in settling claims.

The case highlights the rela- tionship between network and adviser when defending or settling unusual claims. Massow says: “My case should resonate with all advisers who have given specialist advice in an inflexible system.”

Sesame customer services director Michael Couzens says: “When dealing with complaints where a specific situation is used to justify the sale, the definition of suitable advice can change and we do take into account issues such as the climate of the time.”

Couzens says to help networks defend advisers, firms need to document evidence showing the consumer understands that a particular set of circumstances is being taken into account when giving advice.

He says problems occur when the adviser’s audit trail is not shown to take this reasoning into account – as appears to be the case with Massow for advice that was given over 10 years ago.

But Couzens says even if this evidence has not been documented properly, the network may take argu- ments such as Massow’s into account although it is in a difficult position due to its regulatory obligations and responsibility to consumers.

When responding to Massow’s specific criticism that the network should have taken the homophobic climate of the day into account, Sesame sent him a memo saying it would be difficult in today’s climate to use this reason to justify a sale.

Sesame says networks have to take into account both the rules laid down by the FSA and also precedents created by other cases when deciding whether to fight a complaint on behalf of an adviser.

Financial Ombudsman Service spokeswoman Emma Parker says it is up to the network to represent the adviser and argues that the case is another example of how an adviser’s hands can become tied by their relationship with a network.

She says: “We would consider information about conditions at the time when assessing the complaint. But just because it may appear there was no other option for the client is not enough to clear the adviser.”

Parker says the FOS would have to look at whether all other options really were examined thoroughly such as renting property or taking out a smaller mortgage.

The ABI says it has done a huge amount of work in conjunction with the Terrence Higgins Trust and other bodies to remove homophobia in the industry.

It was not until 2001 that Zurich began offering life cover to gay men after pressure from media and the industry.

From September this year, the ABI changed its rules on the personal information that can be requested from applicants, removing questions requiring people to disclose their sexual orientation.

ABI spokesman Jon French says: “The work shows that the insurance industry is moving with the times and taking into account the societal changes that have moved the UK into a more tolerant, liberal country. It also shows the vast difference between where the industry stood in the early 1990s and where it is today.”

Massow could argue that this validates his position that ABI members were discriminating against his clients and placing them in a position where they had to make different choices from the rest of society. He says it is impossible to downplay the homophobia of the time and finds it ridiculous that Sesame says it takes all unusual circumstances into account while at the same time telling him in a memo that it could not use homosexuality to justify a sale.

But other advisers do not see the issue as being as cut and dried. Master Adviser’s Doug Brodie says the fundamental issue is that the FOS has to decide whether an endowment was a suitable investment, irrespective of race, creed or sexuality.

He says Sesame is very effective at defending its advisers and although the situation for Massow is very unfortunate, if an IFA has not documented the risk, they will not be able to successfully defend a misselling claim.

Compass and Pink Investment director Chris Morgan says Sesame always makes allowances for sexuality when recommending products. He believes the network would have looked at Massow’s argument but says other issues need to be highlighted. He says Massow would have had to justify the increased remuneration he got from selling endowments against options such as term insurance or mortgage protection.

Regarding FSAVCs, Morgan says Massow may have been correct to suggest that AVCs were unsuitable but perhaps he should have looked at options such as unit trusts or other investments.

But Massow says this advice would have been worse for his clients because of inheritance tax and other issues. He says arguments such as those put forward by Brodie and Morgan do not take into account what was going on at the time and it is hard for advisers who were not at the coal face in this period to lecture him about what was in his clients’ best interests.

Massow will spend the next few weeks making his defence and is in talks with Aifa. He says: “I am hoping that if the case is settled in court, it will produce a result with ramifications for all advisers who have thought outside the box in the interests of their clients but do not fit in to a network’s blinkered view of the world.”

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