The Financial Ombudsman Service has ruled Openwork badly advised a client and questioned why the intermediary received £40,000 for recommending a bond.
In 2008 the client, referred to as Ms L, inherited more than £1m. At the time, she was living modestly, her home was valued at about £175,000 and her monthly income after essential expenditure was only £50.
Openwork assessed Ms L as having a moderately cautious attitude to risk and recorded she wanted to invest for capital growth.
A total of £500,000 was invested in a bond and Openwork received £40,000 commission from the provider.
Openwork was paid ‘up-front’, rather than part as a lump sum and part as trail commission.
In 2009, Ms L withdrew £10,000 and arranged to take make withdrawals of £2,000 per month, being charged £869 for the first withdrawal and £190 to £180 per month for further cash requests.
Later, after the adviser had died, Ms L consulted a different adviser at Openwork and a fund switch was arranged in 2011.
In 2014, Ms L consulted another adviser who worked elsewhere and thought Openwork had given her bad advice.
Ms L then complained to Openwork, but it did not answer the complaint quickly.
Openwork did say it could not be sure the adviser explained the commission clearly, but offered her. £500. She did not accept this sum and complained to the Financial Ombudsman Service.
In a final decision, ombudsman Philip Roberts ruled Ms L had recently inherited “a life-changing sum” and it would have taken time for all of the implications to become clear, yet the investment recommended was relatively high cost and inflexible.
Mr Roberts also flagged the amount Openwork received in commission, pointing out it was “under a duty to act in their client’s best interest” and the adviser’s fee and charging information says that he charged up to £200 per hour if charging on a fee basis.
At £40,000, Mr Roberts calculated that amounts to 200 hours work if charged at the adviser’s highest hourly rate. If the adviser worked a 40-hour week, that is five weeks work.
“I do not say that commission should directly equate to hour rates of remuneration and hours actually worked,” read the decision. “I do however say that in this case, there is an incredible difference, which hasn’t been explained.”
Openwork pointed out the advice was given before the reforms of the Retail Distribution Review, “so commission was normal at that time” and the was paid by the bond provider, rather than taken from the investment.
But Mr Roberts responded the evidence was that a normal level of commission was 1.8 per cent, not the 8.2 per cent that was taken.
“This is a very real difference, and it isn’t just a simple matter between the adviser and the product provider that is no business of Ms L; she may not pay the commission directly but it does affect her investment.”
Openwork was told to compare the performance of half of Ms L’s investment with that of the FTSE WMA Stock Market Income Total Return index, and for the other half compare it against the average rate from fixed rate bonds, then pay the difference between the fair value and the actual value of the investment.
The firm was also told to pay a £500 award for the distress and inconvenience it caused Ms L and provide the details of the calculation in a clear, simple format.
