PensionsApr 29 2016

Adviser under fire for annuity sale to terminally ill client

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Adviser under fire for annuity sale to terminally ill client

The Financial Ombudsman Service has ruled an adviser should have taken his client’s terminally declining health into consideration before recommending an annuity.

Chadney Bulgin has been ordered to compensate the widow of a client, known as Mr G, who the intermediary claimed was a friend as well as a client.

The intermediary secured him an annuity just three months before he died and Fos has ruled Chadney Bulgin should have not recommended this product and instead highlighted the benefits of using his other accessible funds.

Mr G was retired and receiving pension income of about £16,000 a year and also had a pension fund of about £350,000 from which he had taken tax-free cash, but no income.

He owned his own home with no mortgage and had cash savings of about £180,000.

He also owned some other assets that were valued at about £200,000.

Chadney Bulgin’s factfind noted his attitude to life had changed over recent years after being diagnosed with an illness and his objective was to be financially secure in retirement.

According to Chadney Bulgin’s factfind Mr G wanted to be able to draw income in addition to the pension income of £16,000 a year and spend more on his hobby; holidays and travel.

It was noted on the factfind that Mr and Mrs G had separate finances.

As a result, in April 2012 Chadney Bulgin recommended flexible drawdown and to increase his pension income by £4,000 to bring his annual income to £20,000.

He would then be able to draw as much as he wanted from his pension fund.

An annuity was recommended to provide income of £4,000 a year.

This included a spouse’s benefit for two thirds of the initial income.

The cost of that annuity was about £76,000. After the application had been made there were a number of delays and Mr G decided to instead buy an annuity on a single life basis for about £40,000.

It took some time for the annuity to be arranged but it eventually started in about October 2013.

Mr G then died in January 2014.

His widow, Mrs G, then experienced some problems with the payment of the pension after her husband’s death and took advice from a new adviser who has assisted her with the complaint.

Reviewing the case, Roy Milne, ombudsman, said the adviser should have taken Mr G’s declining health into account before giving advice.

He said the enhanced annuity application clearly noted the advanced stage of his disease and that it was ongoing.

Mr Milne also ruled the adviser’s notes of Mr G’s objective to provide more income were inconsistent with the information contained in his report.

He said: “Mr G had a large cash deposit and a pension fund from which he could have taken income. I was satisfied that he did not need the added flexibility from flexible drawdown. It follows that he did not need to buy an annuity for the additional £4,000 a year income.”

A spokesman for Chadney Bulgin argued the complaint should have been rejected as Mr G was a good friend of the adviser and as such the intermediary was best placed to understand the needs and objectives of Mr G, which were discussed in some depth.

The adviser added Mr G wanted the annuity on a single life basis knowing the consequences to his wife as protecting assets to benefit Mrs G was not Mr G’s priority.

The adviser added they were unaware Mr G’s condition was terminal.

Mr Milne said while he understood the friendship the adviser and Mr G had he has to consider if the advice was suitable “in the circumstances at the time.”

Mr Milne said: “Mr G may indeed have had great plans for the future. He had unfettered access to £180,000 of funds. At the very least I consider the benefits of using these accessible funds should have been brought to his attention.

“I haven’t seen any evidence that this was an execution only sale. The submissions from Chadney Bulgin clearly show that advice was given to Mr G.

“The adviser ought to have been aware that Mr G was very ill. Buying an annuity at that time did not make sense. The adviser has said he was not aware that Mr G’s condition was terminal however I am satisfied that he would have been aware Mr G was seriously ill.”

Chadney Bulgin must put Mr G’s Sipp, which was transferred to Mrs G on his death, back in the position it would be in now if Mr G had received suitable advice.

Mrs G’s new adviser also asked that her costs of £1,000 plus VAT should be paid by Chadney Bulgin. The ombudsman made an award for the £1,000 plus VAT.