A
Persecuted
Financial Ombudsman Service
South Quay Plaza
183 Marsh Wall
London
E14 9SR
Ref:
16 August 2006
Dear Mr Cooper
Mr
& Mrs Opportunists’ complaint about An Old IFA
With regard to the above claim relating to the alleged
misselling of an endowment policy to Mr Opportunist by myself I have been made
aware of the details by Messrs IFA, the firm which took over my financial
advisory practice on my retirement in 1995. However, I have not, so far, had
the opportunity of putting my side of the case and I am writing to you now to
rectify this situation.
As you have been made aware, whilst
I transferred my practice to IFA in 1995 I retained the liability for any
complaints levied – this being the first one I have been involved with. The reason I have not written to you
earlier is that I have been seriously ill since 2002 and was rushed into
hospital at about the time that the allegations from Mr Opportunist were
addressed by IFA in
2004. I had been making a slow recovery when, on the 7th May this
year, I suffered a massive stroke from which I was extremely fortunate to make
an unexpectedly good recovery. As a result of my illness Mrs IFA of IFA made
every effort to spare me from having to deal with this claim, and they were
confident of being able to do so because of the excellent record and reputation
which I had acquired in my 49 years in the insurance industry, and because of
the records which I had passed to them.
As regards my experience in the industry, I was employed by Yorkshire
Insurance Company (“YIC”) from 1946 to 1971 and progressed to being appointed
Inspector of Agents in 1961 when I was given my own area based at the
Twickenham office. I remained with YIC till 1971 and in my 25 years with the
company I received a very thorough grounding as well as a huge amount of
experience in best practice, then current, of marketing all kinds of insurance.
Above all it had become my instinctive habit to explain very carefully to my
agents and clients the nature, the extent of cover and the cost of the
alternatives open to them.
In 1972, I went into business on my own account as an independent
financial adviser and became a member of FIMBRA as soon as it was formed. I
built up a practice based entirely on the recommendations of local professional
people and satisfied clients who referred friends, family and colleagues to me.
During the 24 years to my retirement in 1995, I did not receive a single
complaint of inadequate or inappropriate service.
I have read your adjudication very
carefully and do not agree with your viewpoint. I must therefore request that
you re-consider your adjudication decision in light of the new information
provided within this letter. If you are unable or unwilling to do so I ask that
you progress the matter for an Ombudsman’s decision.
There are numerous reasons for this
and these are itemised below.
1. You advise
that Mr Oppoerunist’s salary was £25,000. In the Questionnaire he himself has
confirmed it as £27,000. Additionally, he makes no mention of his Limited
Company which also provided him with a simultaneous source of income. The
mortgage application Section 15 (copy enclosed) confirms a salary of £22,317
with average bonus/commission of £2,100. Section 18 confirms ‘private company
income’ of £2,000 to £4,000 p.a. Therefore the total annual income falls within
the £26,417 - £28,417 parameters.
2. Again,
within the Questionnaire, he states that he was advised to cancel other life
cover yet he then states that he had no other cover apart from employer funded
death-in-service. I make this and the above point to show that on two provable
occasions he has provided incorrect information. This must be taken into
account when assessing other information he has provided.
The Opportunists were referred to me
by Mr Opportunist’s friend and colleague Cxxxxx Jxxxxx in April 1989. They had
failed in previous attempts to arrange a £110,000 mortgage but were determined
to purchase the property concerned.
I was able to assist him through a
very good connection with the Nationwide Building Society. The loan was outside
of the then norm of 3 x income but Nationwide was able to assist with its
Deposit Free Purchase Scheme which allowed a higher multiple of income to be
used.
Having previously been rebuffed by
their existing lender Barclays Bank this was the Opportunist’s only opportunity
to raise the necessary funds and the mechanism was fully explained to him. He
made it plain that all had to be done without the slightest delay, and all my
efforts for him were on that basis. Scot/Am, apart from being a first class
compound bonus office, I knew would meet his very tight deadline. The person
revealed to me by the claim form he completed is a different person to the one
I remember from the interview. Then he was confident and knowledgeable, and I
considered him an intelligent man, see
his letter of 29th April 1991 to Nationwide B/S.
Although it was not then a
regulatory requirement I did provide figures for both repayment and endowment
mortgages and Mr Opportunist found both acceptable in terms of affordability.
It became clear that he was financially aware and had a good understanding of
his employers death-in-service and pension schemes. For well over an hour the
various mortgage options were discussed and he was favourably impressed with
the endowment-linked route. The potential maturity value of the endowment
method was attractive to him; he decided that this route was the most suitable
for him, and instructed me to proceed on that basis.
As mentioned, Mr Opportunist not only
worked as Construction Project Manager for Sainsbury’s plc but he also operated
his own Limited Company – Contracts Engineers Co. which provided income
additional to his salary. (It is not known whether his employers were aware of his
other business.) The property valuation cheque was drawn on this
company’s account.
Risk
Mr Opportunist was not a risk averse
investor. This became apparent during our discussions and this point is emphasised by his decision to take the risks
associated with forming his own company. This was not his first house purchase,
he had a very sizeable deposit of £100,000 and was fully aware that the
majority of lenders considered a £110,000 loan as too high..
I suggested Scottish Amicable, then
a leading with-profit company and now part of Prudential. (On this point it is
interesting to note that the combined life funds have produced outstanding
returns in comparison with it’s main competitors. The five year fund return
therefore averages close to the 8.6% mentioned below.) The illustration was
based on the then standard LAUTRO projection figures of 7% and 10.5%. As per
normal practice a growth figure approximately mid-way between the two, 8.60%,
was used for targeting the ultimate repayment. The 7% figure unmistakably
showed a shortfall and the 10.50% clearly highlighted a surplus. The
illustration highlighted that it “should
be read in conjunction with the accompanying product details”, brochure
W315.
Mr & Mrs Opportunist were
provided with policy brochure W315 and this would have outlined the fact that
the policy proceeds could not be guaranteed. The acceptance letter confirmed
the actual with-profits benefit (guarantee) and stated “increased by bonuses”. I consider it reasonable that they would
read all the documentation that was provided at the point of sale and raised
any concerns they had with me at that time. In fact it was not until 2002 when
the re-projection letters started showing potential shortfalls that the
Opportunists reason to complain.
Further, it has been held by the
High Court that it was the duty of the applicant to read the answers in the
proposal form before signing it, and an applicant must be taken to have read
and adopted them when he signed. A firm is entitled to rely on the signatures
on the proposal forms and other documents, as evidence that, at the time of the
sale, they concurred with the advice they were given and that they were
comfortable with the policy that they had purchased.
The Scottish Amicable policy was a
with-profits plan. Mr & Mrs Opportunist were informed of the implications
of this, that – as with all similar life companies Scottish Amicable invested divided
their annual profit: some would be allocated to policyholders as an annual
bonus, which would increase the value of the policy and once added could not be
removed; some would be held in reserve. The aim of the reserve was to maintain
bonuses in years when returns may not be as high (sometimes referred to as
‘smoothing’).
In common with all Life Companies,
the funds would be invested in government stock, equities, and property, and
thus future profits could not be determined with accuracy. The make up of a
with-profits policy means that it is generally considered to be appropriate for
low risk investors. I therefore contend that this plan was suitable for the
Opportunists they were not ‘risk-averse’.
Whilst the Opportunists did not have
any individual investments they could not be viewed as risk-averse. I say this
because, firstly, they were looking to borrow £110,000 which they already knew
to be beyond the scope of most lenders. Secondly, Mr Opportunist operated his
own business, Contracts Engineers Co, and this confirms that he was prepared to
take on a certain amount of risk. During our discussions Mrs Opportunist was at
ease with the sum to be borrowed and also at ease with the method of repayment
which he decided upon. Please note, he was shown both methods of repayment and
he opted for the endowment-linked variety.
I contend that the Opportunists were
either low-risk or medium-risk investors and that the endowment policy was
therefore quite suitable for their needs and situation. It is only with the
passage of time and the potential for this plan to fall short of its target
value that they have chosen to complain.
Indeed, it is illuminating that they
have leveled three disparate complaints. Two of these – ‘guaranteed repayment’
and ‘plan running past retirement age’ you have already rejected as the
evidence against these claims is substantive and abundantly clear.
The third complaint, which you have
viewed under the heading ‘suitability’ is one of subjectivity and I understand
that you must consider what is most likely to have happened in the light of the
evidence. To recap, IFA did not have full access to the facts and was not able
to obtain such access due to my illness, therefore your adjudication was made
without access to the full information.
Evidence
Your adjudication stated, “given their circumstances and in view of the
comments contained in their submissions”. By this you are apportioning
great weight to the views now being proffered by the Opportunists some
seventeen years after the advice to purchase the policy. Such comments will
necessarily be lathered with the emotion and concern that the plan may not hit
its target. Nonetheless, complaints concerning investment returns do not fall
within the remit of the Financial Ombudsman Service and by way of balance you
should not equate any greater weight to the Opportunists’ current views than my
own.
By way of balance I enclose a copy of
a letter written by Cxxxxx Jxxxxxx, the client who originally suggested that
the Opportunists approach me. The letter states, “I remember him being extremely happy when you managed to make the
arrangements for him”. He goes on to say “I had no hesitation in recommending your services, and explained the
excellent service I had received from you. The feedback I received after that
was very positive and he was most grateful for my recommendation”. He
finishes by saying “I would hate to think
your well deserved retirement is in any way tarnished by what appears to be an
unjustified claim”
Affordability
Additionally, I feel you are
confusing affordability with suitability. Mr Opportunist was most concerned to
purchase his dream property and assured me that the loan was affordable due to
his career prospects within Sainsbury’s (this has since been proven by his
promotion and anticipated pension of £32,000 p.a. at age 60). Moreover he was
effusive and confident concerning the prospects of his own company.
In short, Mr Opportunist was easily
able to afford the monthly repayments both then and in the foreseeable future.
The fact that Barclays would not then lend him £110,000 loses its credence when
you realise that today they would loan him £116,000. I might also add that
Barclays Bank is far less flexible on income than other lenders which would
extend in excess of £140,000.
It is not within the remit of the
Financial Ombudsman Service to comment or adjudicate on the mortgage
arrangement. You can only comment or adjudicate on the associated investment
plan.
I contend that the arrangement was
affordable at the outset and further contend that this is confirmed by the
passage of years which shows that the Opportunists continue to live in their
dream house with a higher mortgage which continues to remain affordable.
Questionnaire
There are some specific
claims in the questionnaire which I would like to deal with:
1. The
policy is still with Scottish Amicable, which was taken over by Prudential in
1977, and is still enjoying tax relief on the premiums. I have received from
Scot Am/Pru full details of the substantial cash payments made to all policy
holders at that time, together with special bonuses added to the policy; there
was also provision for final bonus paid on maturity: not guaranteed. Policy
holders were given an option to further enhance their policies with the cash
paid to them. It would also have been prudent to use the savings in interest to
build a tax exempt fund for the future. I believe that Prudential have amalgamated
ScotAm funds with their own. Very good thinking as shown by their progress to
lead all their competitors over the last five years.
23. This is
not true. See my reply to point 1.
25/27. I know nothing of Kent Reliance. The
mortgage I arranged for Mr Opportunist was with Nationwide Building Society,
Staines Branch; his mortgage application stated that his existing mortgage was
on a repayment basis with Barclays Bank.
33. This does not
make sense to me. No additional loans have been arranged by me or my
successors. Are they connected with his private business activities as
disclosed in his original mortgage application?
My overall feeling is that
this claim form and questionnaire are designed to create an impression of lack
of understanding, forgetfulness and naivety, completely at odds with my memory
of him and his achievement of executive status in Sainsbury’s plc.
Other
Issues
I wrote to the Opportunists on May
23rd 1989. This letter included the acceptance letter from Scottish Amicable
and also confirmed that the roll-up of interest would take the loan in excess
of the £110,000 death cover provided by the endowment. It further confirmed
that Mr Oppotrunist had stated that he was not concerned because his company
death-in-service-cover would meet the difference. My letter did suggest that he
contact me if he wished to extend his protection to cover the difference. This
is prima facie evidence that the full facts of the mortgage and endowment
linking were known to them. They had ample opportunity upon receipt of this
letter to question the repayment method, the mortgage arrangement or the
potential shortfall in death cover.
My file notes show that costings
were provided for years one through to four and this provides additional
confirmation that the Opportunist’s decision to purchase the endowment was made
in full knowledge of the costings and the facts. This was also confirmed in my
letter to the Opportunists dated 7th April 1989.
In his submission to you he explains
that he thought the plan was guaranteed to repay the mortgage but that only the
surplus was variable. This is disingenuous and seems an extremely unlikely
situation. Mr Opportunist is not a stupid man and the illustration, the
acceptance letter and the product brochure all made clear that the ultimate
repayment was reliant on bonus additions. The figures were incontrovertible -
growth at 7% p.a. produced a significant shortfall.
This illustration complied with the
regulator’s requirements at the time of the sale. It clearly records that if a
growth rate of 7% is achieved the policy will fall short of the required amount
at maturity. The document states that the plan has been designed so that the
mortgage would be repaid in full at the end of the term if a future growth rate
of 8.6% p.a. before charges were achieved. I can confirm that this was a
reasonable assumption to have made in 1992 when investment returns were higher
than today.
It is reasonable to assume that they
would have read the information that they were given, which clearly stated that
the maturity value of the policy was not guaranteed and was dependant upon
investment returns
I understand that another
adjudicator, in similar circumstances stated, “I consider it reasonable to assume that someone would take some care to
ensure that they were happy with the terms and conditions of the contract they
were buying, especially if it was linked to their mortgage. Additionally, it
would be fair to state that you could have questioned the adviser to check your
understanding of the product, if needs be, and/or sought guidance from a third
party”
Additionally, another adjudicator
was moved to state, “I have considered
whether the recommendation to take out the policy was suitable for your needs
and situation at the time. In 1993 the prevailing economic conditions were such
that with-profit endowment policies were performing well, and in the majority
of cases producing returns over and above those required to repay future
mortgage loans. It would not have been unreasonable to expect that such a policy
was likely to fulfill its objective of repaying your mortgage loan and
providing surplus funds at the end of the term. As such a with-profit endowment
policy was considered to be low risk and thus suitable for cautious investors”.
Mr Opportunist’s confidence in his
ability to meet the cost of the mortgage (repayment or endowment-linked) has
been borne out by subsequent events in his business life. For him to be able to
retire on £32,000 p.a. at age 60 implies a current salary in excess of £90,000
given the timeframe of his scheme membership. The question of affordability and
suitability is, I believe, answered by these subsequent events.
Summary
·
A with-profits endowment policy was considered ‘low risk; in 1992.
Unless the Opportunists can be considered risk averse I maintain that the plan
was suitable.
·
The affordability of the different repayment options is a ‘red herring’.
Mr Opportunist confirmed his contentment both to me and our mutual friend
Cxxxxx Jxxxxxxx.
·
At no point did he complain to me or even comment about the cost or
affordability of the endowment option.
·
At no point has he commented on or complained to the Financial Ombudsman
Service about the cost or affordability of the endowment option.
·
At no point has he contended that he was not provided with repayment
options.
·
At no point, until 2004, did he find reason to complain about the
endowment-linking. Even then the complaint was not about affordability but
about the ability of the plan to achieve its target of £110,000.
·
At no point have the Opportunists stated that I told them the endowment
was the cheapest option.
·
The mortgage arrangement falls outside of the Ombudsman’s remit and only
the investment plan can be commented and adjudicated on.
Finally, I would leave you with the
following statement made by the Financial Services Ombudsman which is, I
believe, relevant to this case.
“The
complainants made their own decision to proceed with the application and were
not compelled to accept any proposals put to them. If the complainants were concerned
with any terms or conditions, it would have been open to them to have raised
their concerns with the firm before accepting its offer or perhaps seek the
mortgage from another lender. The general legal principle is that a person is
bound by the terms and conditions that they have signed, irrespective of
whether they have read or understood them”.
Yours
sincerely
An
Old and frail IFA
Enclosures 1. Copy of Nationwide mortgage
application
2.
Copy of Scottish Amicable acceptance letter
3.
Copy of letter from Cxxxx Jxxxxx
4.
Copy of letter to Mr Opportunist dated 23/5/1989
5.
Copy of file notes confirming discussion regarding deferred interest
6.
Copy of a letter to Mr Opportunist dated 7/4/1989
7.
Copy of Mr Opportunist’s letter to Nationwide B/S of 29th April,
1991.