Your IndustryApr 13 2017

Adviser criticised for failing to spot financial problems

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Adviser criticised for failing to spot financial problems

An adviser has been told they should have taken more account of a couple’s “fairly obvious financial problems” when arranging protection cover.

In July 2008 a couple with three children, referred to as Mr and Mrs W, met with an adviser at Kenneth Alan Partnership Financial Services to discuss their mortgage arrangements.

The pair had an existing capital and repayment mortgage with 16 years remaining which cost £1,580.28 per month. 

They were looking to consolidate debts of £15,000 with a new mortgage and to extend the term to 21 years. 

At this stage, the adviser recommended a new joint life and critical illness over 21 years. 

The adviser also arranged a family income benefit plan that provided a £1,250 per month benefit for the surviving partner. 

Mr and Mrs W met with the adviser again in 2011. 

At this stage they had become self-employed and had a joint net income of around £3,600 per month. 

Aside from the mortgage, no debts were recorded on the fact find, but the home loan now had an outstanding balance of £215,000 and had been changed to interest-only in October 2009. 

The adviser at this stage recommended replacing the existing joint protection policy with two single life policies with Scottish Provident. 

The adviser also provided a quote for cover on a joint basis costing £139.21 per month. 

According to the financial planning report, Mr and Mrs W were happy to pay the additional £20 per month for the benefit of additional life and critical illness cover on their own lives. 

A further meeting took place in 2013 where the adviser used the 2011 fact find to ‘update’ Mr and Mrs W’s records. 

There was still £215,000 outstanding on the mortgage but additional liabilities amounting to £15,400 were noted. 

Two single life policies with Ageas were then recommended. 

Both had an initial sum assured of £215,000 reducing over the 16 year term.

The recommendations letter noted that the level term cover was considered but, as the aim was to change back to capital and repayment in 12 months, a decreasing level of cover was acceptable.

The policies also included family income benefit of £1,400 per month. 

The cost for Mr W was £96.52 per month and £63.68 for Mrs W. 

This saved them £3.77 per month compared to the cost of the previous policies. 

In 2014, Mr and Mrs W met with the adviser again to arrange a re-mortgage and consolidate their debts. 

According to the mortgage application form, these now totalled £16,690. A new mortgage for £250,000 was then applied for with the term extended to 23 years six months. 

New protection policies were once again recommended, with Ageas, with two separate lives assured. 

The premiums were £132.14 and £95.39. 

In 2016 two payments were missed so a new policy with a sum assured of £240,000 over 22 years with a monthly premium of £136.39 for Mr W and £104.06 for Mrs W was set up. 

Mr and Mrs W cancelled the policy in March 2016 and sought advice elsewhere. 

They now have decreasing term cover without critical illness. 

The Kenneth Alan Partnership adviser argued the clients’ income the last time he saw them in 2014 was increasing and he had no further contact from the clients until January 2016. 

The adviser argued he couldn’t see how he would have been made aware of Mr and Mrs W’s worsening financial situation, unless he’d asked them for copies of their bank statements each month to see how they were doing financially. 

But in a final decision, ombudsman Ivor Graham said over the period the adviser was providing advice Mr and Mrs W showed clear signs of struggling financially as they moved from a repayment mortgage to an interest-only one.

The adviser has been told to refund all the premiums Mr and Mrs W paid from 2014 to the date they cancelled the policy in March 2016 minus the hypothetical cost of a decreasing term assurance without critical illness on a joint life basis over the same period. 

The adviser should also pay interest at the rate of 8 per cent a year.

emma.hughes@ft.com