OpinionAug 29 2014

Should advisers be on the hook for big firm compensation?

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Should advisers cough up when a major national firm or network they are part of is forced to compensate swaths of consumers over past business?

It is a thorny issue, and one which came to centre stage this week after FTAdviser revealed Sesame will not seek to recover anything from advisers to cover costs or recover redress relating to a major pension transfer past business review.

This puts it at odds with Ashley Law, which we exclusively reported last week is seeking in excess of £1m from advisers for a similar review. It will recover the £800 flat rate fee for the roughly 1,000 cases that have been assessed, as well as any compensation due.

One ex-Ashley Law adviser with 10 cases, four of which will be compensated, claims his bill will be around £20,000.

Many advisers - even those who are not affected - have reacted angrily, claiming that in cases involving larger nationals and networks, it is the processes that have forced the Financial Conduct Authority to intervene, and thus individual advisers should not be on the hook.

Our sister paper Financial Adviser reported this week that IFA advocate Evan Owen has set up an legal action group to help advisers, if initial efforts through the Advisory, Conciliation and Arbitration Service fail. He is adamant any contractual clause would be deemed irrelevant.

Jock Cassidy, managing director of Ashley Law, told the paper that if an adviser is “unable to produce the documentation required by the company to support his/her recommendations, he/she ought to be prepared to accept blame”.

He added: “Ashley Law always invites advisers to discuss their issues, but it must be realised that if the likes of the ombudsman upholds a complaint, there is no appeals process similar to the process enshrined in English Law.”

With more and more firms being asked to review past business - most recently Financial Ltd - this is an issue that is going to be very real for many. It’s also the last thing advisers struggling under increasing costs pressures need.

I naturally sympathise with advisers getting landed with major bills for business conducted many years ago. That being said, only if the questionable advice was in accord with the firm’s processes can it be deemed the firm’s fault.

A-GAR-st at poor service

Another major story we’ve been following was also in centre stage again this week, after 16 advisers came forward with a range of concerns over guaranteed annuity rates on Scottish Widows pensions, including cases where clients had missed deadlines due to poor service.

It all stems from a case highlighted by Financial Adviser last week, in which an adviser claimed a client missed his ‘window of opportunity’ due to the firm not receiving notification from the firm, whose service has been the subject of much consternation of late.

In the latest story, a number of the advisers spoken to by the paper argued the failings constituted a breach of Treating Customers Fairly provisions.

The insurer, at least, recognised its “recent service levels have fallen short of our normal high standards”. It said it has increased staffing levels and “will continue to do so, with training programmes in place”.

Scottish Widows is not alone in being scrutinised over GAR service.

Elsewhere this week, Financial Adviser reported that Aegon has been referred to the ombudsman after a client of veteran adviser Harry Katz was refused the right to change his mind on a policy due to the cooling off period, which in this case commenced from when the quotation was sent, had expired.

Aegon said: “We believe that the information regarding his client’s product choice and the cooling-off period was clear, but are reviewing the case on the basis that he was subsequently provided with incorrect information over the phone.”

Skandia’s Barnett barrage

A big story that broke last Friday was the news that Skandia, now Old Mutual Wealth, was closing the Skandia Life Invesco Perpetual Income and High Income mirror funds and transferring all of the money to a vehicle managed by their former manager, Neil Woodford.

Advisers were generally outraged that the firm had made the decision for them, saying that the Invesco funds should have been left open. Costs are also an issue: the move will cost around £6.4m, though a 0.2 per cent reduction in TER will make the money back over the longer term.

FTAdviser reported on a strong response from Paul Feeney, Old Mutual Wealth chief executive, this Tuesday, who wrote to advisers effectively arguing that as they were likely to move most of the money to follow Woodford anyway, costs on the Skandia fund would have become prohibitive.

He said: “Whilst theoretically we could have kept the funds open, the demand we have seen from advisers for Woodford would have resulted in even greater redemptions from the Invesco Perpetual funds.

“This would have resulted in the TER of the funds increasing and ultimately the Skandia funds becoming untenable.”

At least the rationale is clear, although I suspect some advisers will see things differently.

RBS back in the bad books

Finally, Royal Bank of Scotland was hit with another fine this week, one of many in the years since the financial crisis emerged, this time for mortgage advice failings between 2011 and 2013 related to apparently asinine affordability checks and poor oversight.

As we said in our blog following the story, perhaps the issue gives some context to decisions by Natwest, which was implicated in the final notice, to overcomply with Mortgage Market Review rules.