The Financial Ombudsman Service (Fos) has ruled that 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 make withdrawals of £2,000 a 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 who 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 Fos.
In a final decision, ombudsman Philip Roberts 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 said he charged up to £200 per hour if charging on a fee basis.
At £40,000, Mr Roberts calculated that amounted to 200 hours work if charged at the adviser’s highest hourly rate. If the adviser worked a 40-hour week, that was five weeks’ work.
The ombudsman’s decision read: “I do not say that commission should directly equate to hour rates of remuneration and hours actually worked. 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”.
But Mr Roberts said the evidence showed that a normal level of commission was 1.8 per cent, not the 8.2 per cent that was taken.
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 to 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 £500 for the distress and inconvenience it caused Ms L and provide the details of the calculation in a clear, simple format.
