Openwork must compensate a client who complained about receiving unsuitable investment advice and claimed they were misled about charges.
An Openwork adviser recommended the complainant, Mr M, transfer his existing bond and Isa to another provider with the client understanding charges for the new arrangement would be “broadly the same”.
However, when he received the first annual statement, the client was charged £2,200 for adviser fees and a £1,884 penalty for closing the bond.
The Financial Ombudsman Service decided that, while there was a lot of paperwork to read through, the network did make its charges clear.
Ombudsman Elizabeth Dawes says: “But, I accept Mr M relied on the adviser’s comment that the charges he would incur would be ‘broadly the same’. And, even though the fees were made clear in the paperwork sent to Mr M, it was Openwork’s responsibility to ensure its recommendation was suitable, taking into account the charges he would incur.”
The FOS decided the recommendation to switch providers was unsuitable, particularly because of the cost of advice and the cost of closing the bond.
It said there was little discussion about how the existing investments had performed or the anticipated performance of the recommended investments.
Dawes says: “Openwork made reference to a fact sheet which included some performance data. But, I don’t consider Openwork explained why it thought its recommendation would perform better than the existing funds.
“I take the view that Mr M would have invested differently. It is not possible to say precisely what he would have done differently. But I am satisfied that what I have set out below is fair and reasonable given Mr M’s circumstances and objectives when he invested.”
Openwork was ordered to repay the adviser fees plus 8 per cent interest per year from the date fees were paid to the settlement date and refund the exit charges plus 8 per cent interest per year from the date the bond was surrendered to the settlement date.
In addition it is to pay the client £100 for trouble and upset caused, and compare the performance of the client’s investment with a benchmark and pay the difference between fair and actual value.
What evidence is there that the adviser said that.
Doesn’t really matter what the adviser said. The advice appears bad. The FOS decision says the reduction in yield due to charges on the new recommendation was 0.41% lower. However, that did not include the 1.25% ongoing adviser charge (yes 1.25%!). The FOS decision says: “I don’t think the marginal annual saving was, or should have been, a driver in the recommendation to switch providers.” This is important as the FOS decision says cost saving was the key driver in the recommendation and that no other reasons were given. So, on that basis, saying its cheaper as your recommendation when its not, is going to result in failure.
The FCA guidance on when to include the new ongoing Adviser charge in the cost comparison is often misinterpreted and this sounds like a case where it should have been. In which case, the real RIY difference will be circa 1.6% which is an open and shut case of too much additional cost, contrary to the impression given in the reporting.
On the other hand, what justification was there for the recommendation if it cost the client over £4,000 in fees and penalties?
If you wouldn’t do it yourself, don’t recommend it – simple as!
Apologies, I have now read the FOS report. The RIY reduced by 0.41% without ongoing Adviser charge so will increase by circa 0.8% (including the exit penalty). Two concerns, the FOS gave extra weight to the exit penalty to the extent of double counting it and many forms regard extra RIY up to 1% as a ‘pass’ for cost comparison – time to think again?