The Financial Ombudsman Service has sided with Prudential in an argument about annuity commission charges, although it reprimanded the firm for not making the charges clear to the client.
Two clients of Prudential Assurance Company complained to the Fos about issues that arose when they arranged their joint life annuity.
First there were delays in setting up the annuity and then, the clients said, they were not made aware that Prudential would receive commission for carrying out this work. They asked for a refund of the £2,016 commission they had paid.
The client, dubbed Mr C, held a personal pension with the provider and contacted the firm in October 2017, ahead of his retirement in January 2018.
He was told to call back nearer the date and when he did so it was agreed that Prudential would obtain an enhanced annuity quote because of Mr C and Mrs O’s health.
Prudential used a third party provider to set up an enhanced annuity for Mr C which would be payable to Mrs O after he died.
The start date selected was Mr C’s 65th birthday – but arranging the annuity took some time, and it wasn’t set up by Mr C’s selected retirement date in January.
The transfer of funds to the annuity provider was confirmed by Prudential on February 27 2018 and the annuity was eventually set up in March 2018.
Mr C complained about the delays and Prudential agreed to complete a loss calculation and pay £75 for any distress and inconvenience caused.
But it took a while to calculate the loss and in the meantime Mr C had questioned why commission had been paid to Prudential as the annuity was set up on a non-advised basis.
Prudential paid redress for the delay in setting up the annuity, but said it had disclosed details of the commission due for arranging the annuity.
An adjudicator at the Fos thought the complaint should be upheld as he thought Mr C had been misled regarding what commission would be paid. But they did not think the commission should be refunded.
Mr C thought the decision was biased and the case was referred to the ombudsman for a final decision.
The Financial Conduct Authority explains the difference between non-advised and advised annuity sales in its handbook, outlawing commission for advisers but not for providers as a charge for their services.
Ombudsman Keith Lawrence said for that reason it was not unreasonable for Prudential to have charged commission although he expected the firm to have confirmed that it would be earning commission and to have given an explanation of the work involved to substantiate any charges.
He agreed with Prudential that it had covered both of these expectations as it was made clear to Mr C that the firm was going to obtain quotations from its panel of annuity providers and would be looking into various options.
Prudential had also explained the process involved, he said. This included gathering information about Mr C’s personal situation and objectives, looking at what could be offered from its panel of annuity providers, arranging medicals before another discussion with Mr C about the exact figures involved and whether he wanted to go ahead – or make his own arrangements elsewhere.
Therefore the ombudsman believed there was a reasonable amount of work involved in setting up Mr C’s annuity to warrant a £2,016 commission payment.
Mr Lawrence said: “I think Prudential did act reasonably in asking for and receiving commission for its dealings with Mr C, and I think it did confirm, in a number of ways, that it would charge commission.”
But he did find that at various times an adviser from Prudential wasn’t clear in his explanation of the commission structure and may have misled Mr C about what he should have been charged for setting up the annuity.
Mr Lawrence said: “I agree with the adjudicator that Prudential should have been clearer and that its confusion would have caused Mr C some degree of inconvenience by raising his expectations of what was correct.”
Therefore he decided that Prudential should pay Mr C a further £100 for the distress and inconvenience caused by the lack of clarity in its communication about whether it should have received commission for arranging the annuity.
The ombudsman also said that the original offer of redress and £75 for the inconvenience caused by the delay in setting up the annuity was fair and reasonable.
Last month (September 30), Prudential was fined almost £24m by the FCA for failings in selling non-advised annuities.
The FCA took action against Prudential with regards to sales between July 2008 and September 2017.
The FCA found Prudential had failed to ensure that customers were consistently informed that they may get a better deal if they shopped around and didn't take reasonable care when considering the fair treatment of its clients.
At the same time the provider failed to monitor calls between its call handlers and customers and failed to ensure the documents used by call handlers were appropriate.
amy.austin@ft.com
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