Financial Ombudsman Service  

Advice from 1990 costs Sanlam

Advice from 1990 costs Sanlam

The Financial Ombudsman Service has ordered Sanlam Life & Pensions UK to compensate a client it believes was mis-sold a long-term savings plan in 1990.

The ombudsman ruled the client should not have been sold a plan which would need to be kept for a minimum of 20 years for maximum benefit, and therefore offered little flexibility, given he was 31 and single with no dependents at the time of the sale.

Rather, the ombudsman suggested, the client should have been sold one of the other shorter-term plans offered by Sanlam and he questioned whether the client was truly aware of the long-term nature of his plan. 

After 17 years the client surrendered his plan in 2007, in what his representative claimed was in "the hope of meaningful return, not because he was satisfied with it".

The ombudsman ruled the charging structure associated with the client's plan made it "unnecessarily restrictive" as a long-term commitment, and a shorter product would have given him the freedom to cash in his savings plan, after a five or 10-year period, "if and when his circumstances, ambitions or objectives changed".

While the ombudsman acknowledged the "understandably limited documentation" surrounding the original sale and advice, he felt satisfied with the information to reach a decision based on the "balance of probabilities".  

The ombudsman agreed with concerns raised by the client's representative, arguing the wording used in the original brochure suggested short and medium-term situations for which the plan could be used.

The brochure referenced events such as "a family emergency, storm damage, a new car, a home extension and a holiday of a lifetime", which the ombudsman ruled implied the policy could be used for short or medium term emergencies despite the charging structure making short surrender of the policy "highly inappropriate".

Ombudsman Tony Moss claimed this wording rendered the brochure "at best ambiguous and arguably misleading".

He said: "Sanlam admits that this savings plan needed to be kept for a minimum of 20 years for maximum benefit yet the brochure refers to events which are clearly not exclusively long-term in nature.

"There is no reason to assume that a customer would only want or have need of these things at least 20 years in the future.

"In my view these words and phrases give the impression, by failing to explicitly clarify this issue, that this plan would be suitable for medium if not short term emergencies and 'treats'."

Sanlam raised concerns with the ombudsman as to the similar nature of the client's claim when compared with others received by the advice firm from the same representative.

Sanlam claimed the representative's comments about why the client kept the policy for so long were "almost word for word the same statements it provides whenever it presents a complaint about this savings plan".

The ombudsman made no reference to these concerns in its findings.

Sanlam has been instructed to compensate the client by comparing the return he would have achieved when surrendering the investment in 2007, with the return if investing the same sum in a 10-year savings plan.