The Financial Ombudsman Service has ordered Sanlam Life & Pensions UK Limited to compensate a client it believes was wrongly recommended savings plans in 1989.
The client, who was represented by a claims management company, bought three savings plans - two in 1989 and one in 1991- and was aged 21 and living with his parents when he was first advised by Sanlam's predecessor business .
The savings plan stated it needed to be retained for at least 25 years for maximum benefit, but the client surrendered all three in 1994.
The claims management company argued the client should not have been recommended such "long-term and inflexible" contracts when there was a strong likelihood his circumstances would change in the short to medium-term.
Sanlam defended its advice, arguing that although the client's circumstances were likely to change it saw nothing to suggest any changes would make the policies unaffordable.
The ombudsman agreed with the claims management company, stating he did not dispute the policies may have been affordable but did not believe they were a suitable recommendation due to their long-term nature and the young age of the client at the time of advice.
Ombudsman Tony Moss said: "From what I’ve read, there is no evidence that the client was unwilling to set aside monthly sums for savings purposes, but I can see [no] reason why he, particularly at his age, would have wanted to commit to a savings plan which needed to be kept for a minimum of 25 years.
"In effect, to save exclusively for the long term, thereby excluding the option of using this savings pot for any priorities, projects or purchases in the short or even the medium term.
"Even if the client might, in theory, have been willing to contemplate retaining this plan for such a long-term I do not see why he would have wanted to be restricted to this period."
The ombudsman ruled if the client had been presented with the option of a flexible savings plan in which he could choose to take out lump sums without being penalised with charges, he would have done so.
The ombudsman also agreed with the claims management company's argument that the terms of the policies had presented the plans as being appropriate for medium-term savings, contradicting the minimum 25 years requirement.
The plans referenced potential uses such as "storm damage to your home or garden" and "that new car you have always promised yourself" - statements the ombudsman ruled were "manifestly misleading" and meant the client was not in a "fully informed" position to proceed with the plan.
The complaint was upheld despite Sanlam insisting the adviser had clearly described the product as "long term" to the client, which it argued was demonstrated by his surrender request letter in which he wrote he had "carefully considered the disadvantages of cancelling the...policies early".
The ombudsman ordered Sanlam compensate the client by comparing the return he received on the dates he surrendered each plan, with how much interest he would have earned if the same sums on the same dates had been invested and received a return equivalent to the Bank of England’s base rate plus 1 per cent.