Sanlam Life & Pensions has been ordered by the Financial Ombudsman Service to compensate a client more than 30 years after it advised him to take out an unsuitable savings plan.
A client of Sanlam's has complained to the Fos about advice he received in 1988 to take out a long-term savings plan.
At the time the client, who the Fos called Mr K, was a single student with limited income and no previous investment experience. Therefore, he argued, a long-term savings plan was an inappropriate recommendation.
But Sanlam disagreed, arguing that since Mr K had paid the premiums over a lengthy period of time this suggested he had a need to save for the long term.
Ombudsman Tony Moss found the savings plan would only bring worthwhile returns over a longer time period due to the charges involved and said the fact Mr K held the plan for 30 years was “no justification for a flawed recommendation”.
He also found the brochure describing the savings plan was “highly misleading” and that this had been brought up in previous ombudsman decisions.
The brochure implies that the savings plan is suitable for a wide range of short, emergency and medium-term uses, which Mr Moss said was clearly not the case as the charging structure made it only cost-effective as a long-term savings vehicle.
Mr Moss said: “There are [...] countless reasons why most 21 year olds would be unable to predict whether they would want to, let alone be able to afford to, commit to an exclusively long-term savings plan, lasting a number of decades.
“Everything from job changes, periods of unemployment, marriage, family commitments and other financial priorities are likely to impact on their desire and/or willingness to keep to a savings plan for two to three decades ahead.”
He concluded that Mr K had not been in an informed position to take up this plan and that the advice given by Sanlam was unsuitable.
Therefore Sanlam was ordered to pay compensation by comparing the surrender sum Mr K received with what the same monthly payments would have delivered if invested in a more suitably flexible investment product.
What do you think about the issues raised by this story? Email us on firstname.lastname@example.org to let us know.