AnnuityApr 15 2020

Adviser held to account after annuity advice failure

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Adviser held to account after annuity advice failure

Romilly Associates IFA has been ordered by the Financial Ombudsman Service to pay compensation after it gave unsuitable advice about an annuity which resulted in the clients' beneficiary missing out on more than £24,000 in payments.

The beneficiary, who the Fos called Mrs G, complained about the advice firm after her late husband was advised to buy an annuity with a five-year guarantee period but, she argued, he should have taken a ten-year guarantee.

Mr G took advice from Romilly in 2012. He was approaching age 60 and held a pension plan with a fund value of £68,000.

Mr G told the adviser he wanted to maximise his income by not taking the tax-free cash available.

Therefore the adviser recommended Mr G take a five-year guaranteed annuity to provide some protection until he would take his state pension and also have further income options as he held another pension plan.

Mr G’s annual income from the annuity was £4,891.08 from June 2012. The income was based on a single life plan and payable monthly in advance for a minimum of five years.

The adviser also recommended he take an enhanced annuity due to Mr G’s ill-health. 

Mr G passed away in 2015 and income payments were paid until the end of the five-year guarantee period in 2017 but then stopped.

Mrs G complained to Romilly saying it had failed to give her late husband information about a ten-year guarantee period, which could have been better suited to his circumstances.

Romilly rejected the complaint saying the five-year product matched Mr G’s objectives to maximise income and all other options had been discussed.

An adjudicator at the Fos found although the firm said it had discussed the ten-year guarantee option, there was no evidence to show that they quantified the income for this option. 

He said in order to assess all the suitable options, the adviser should have explored all options available so Mr G could have made a fully informed decision.

The adjudicator accepted that the inclusion of the spouse’s pension within the annuity would have significantly reduced the annuity income and was satisfied that Romilly was not wrong to discount this option. 

But the adjudicator felt without knowing the actual amount of income for the ten-year guarantee option, Mr G wasn’t in a position to make a fully informed decision. 

The annuity provider told the Fos a ten-year guaranteed annuity in 2012 would have cost £4,825.57, which was £5.46 per month lower than the five-year guarantee.

The adjudicator said Romilly should have recommended the ten-year option as the difference in income was not significant but payment would have been received over a longer period.

But Romilly disagreed saying Mrs G wasn’t its client and that its advice to Mr G hadn't been unsuitable. 

It also noted the annuity with a ten-year guarantee was more expensive in real terms and the fact that the five-year guarantee transpired not to be the most appropriate product didn’t mean it was inappropriate.

Ombudsman Keith Taylor, said while the ten-year guarantee was more expensive, the difference was small and the benefit of taking a reduced income would have been a gain of five years of payments equating to £24,000.

Mr Taylor said: “I think the adviser probably ought to have recognised the apparent value in the annuity with a ten-year guarantee when compared to the five-year guarantee. Even though the ten-year guarantee period didn’t match Mr G’s specific needs, I think the value of it was such that it ought to have been recommended to Mr G.”

Therefore he upheld the complaint on the basis the advice to Mr G was unsuitable due to the omission of information about a ten-year guarantee annuity.

Mr Taylor said: “Had Mr G been fully informed, I’m satisfied that he would have made different choices and purchased an annuity with a ten-year guarantee period.”

Romilly was ordered to put Mrs G in the position she would be in if the unsuitable advice was not given. This involved comparing actual income received from the five-year annuity and any gain which would have been received if Mr G had gone for a ten-year annuity.

It must also pay £250 to reflect the distress and upset caused by missing out on the extra income.

amy.austin@ft.com

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