What is financial mis-selling?
Most of us have heard of PPI and the mis-selling scandal which caused tens of thousands of financial services customers to seek compensation. Now, experts believe that pension and mortgage mis-selling will be the next major problem to hit the financial services sector.
The Financial Conduct Authority (FCA) is an independent public body which regulates financial advisers. Reviews of the industry by the FCA have found historic mis-selling in relation to a wide range of financial products but most notably in relation to mortgages and pensions.
The consequences of negligent financial advice can have devastating effects for an individual and their family. Thompsons Solicitors are now fighting for clients who have suffered financial loss as a result of negligent advice.
How do you know if you've been mis-sold a financial product?
Below are some basic examples of how mis-selling and negligent advice can result in financial loss.
Do any of these scenarios apply to your situation?
Interest only mortgages
Interest only mortgages have received lots of negative attention in the media over the years but the fact that you were advised to take out an interest-only mortgage in itself does not necessarily mean that you have a claim.
The undernoted scenario is a common example of mis-selling. Although the subject fully understood the nature of an interest only mortgage (and the risks involved were explained to him) he would never have been able to successfully repay the capital sum as the investment vehicle sold alongside the mortgage was unsuitable and inappropriate. The subsequent financial loss was a direct result of the adviser's negligence.
Interest only mortgage example
John is advised to take out a 10-year interest only mortgage in the sum of £200,000 as he wishes to purchase some nearby land and extend his property. His financial adviser recommends this particular product on the basis that it is both cheap and easy to obtain. No alternative products are considered at the time. The adviser explains the risks involved and strongly recommends that John also take out an endowment policy alongside the mortgage which will act as a vehicle to repay the outstanding capital sum. However, the endowment policy he recommends is only worth a maximum of £100,000.
At the end of the term, John cashes in his endowment policy but, due to the shortfall, has insufficient funds to repay the capital sum and therefore is forced to sell his home.
Many investors are fairly knowledgeable and like to be involved with the management of their investments, but others simply place their trust in the experts.
The scenario below is an example of "churning" which is a widespread practice where advisers regularly switch a client's money from one product to another for the sole purpose of generating commission. These high frequency costs hit the client regardless of whether they make a gain or loss from the switch.
For years Paul has used the same financial adviser who manages his portfolio and dictates the investment strategy. Every few months his advisor switches his shares and bonds from one product to another and Paul is charged a "management fee" on each occasion. Paul is charged this fee irrespective of whether the switches make him any money. Following an in-depth review of his portfolio, Paul considers the switches to be excessive. In addition, he cannot see any obvious benefit from the activity and, in most cases, the funds appear to have simply been transferred between almost identical products.
Paul is unsatisfied with his adviser's performance and feels that the significant fees are unjustified given that he has not benefitted from the investments. The adviser is unable to provide a satisfactory explanation.
Mortgages running past retirement age
A financial adviser has a duty to properly assess the affordability and suitability of any product they recommend. In the undernoted example the subject's adviser failed to consider his age and retirement plans and recommended an inappropriate product. The subject suffered significant financial loss as a result of this breach of duty.
Mortgages running past retirement age example
George is a 55-year-old man who sought financial advice following a change in job and salary. His financial adviser recommended that he remortgage his home to alleviate the pressure in the short term. Unfortunately, the adviser recommended the product based on George's current income and circumstances and failed to recognise that the term of the mortgage would expire long after George had retired.
A few years later, following his retirement, George finds himself in a situation where he is unable to meet his monthly payments and eventually has no option but to sell his home and move into rented accommodation.
Self-certification mortgages often paid far higher commissions to financial advisers and were therefore recommended to clients irrespective of their suitability and affordability. Consumers were usually never informed about the higher rate of commission.
Ringo owns his own business and his annual salary can range from £30,000 to £75,000 depending on his company's profitability. Ringo wishes to purchase a second property to let out and seeks guidance from an independent financial adviser. The adviser recommends that he opt for a self-certification mortgage and that, on his application form, Ringo should state that his annual salary ranges from £75,000 to £100,000 to ensure that his application is successful. Ringo is told that this won't make any difference in the long run as that is roughly his top line salary anyway.
Ringo is granted the mortgage but soon after starts to default on his monthly payments due to a downturn in the business's profitability. Following lengthy discussions with the lender, Ringo has no option but to sell the second property and suffer a financial loss as a result.
Other mis-selling examples
Switching from an occupational pension to a personal pension example
Mick has worked for the same company for 35 years and has an attractive occupational final salary pension worth in the region of £75,000. Mick has no investment experience but is keen to find out how he can maximise his future income and therefore seeks advice from an independent financial adviser. Following his adviser's recommendation, Mick agrees to transfer his pension pot to a SIPP (self-invested personal pension). He is told that this move is a "no-brainer" as it will offer him greater flexibility and control over his investment which will, in turn, lead to a greater return. The financial adviser fails to explain that Mick will lose all of the safeguarded benefits and guarantees under his occupational pension scheme such as his life cover and private health insurance. In addition, Mick is not told of the hefty charge he has to pay in order to transfer his pot.
Over the next few years, on the recommendation of his adviser, Mick authorises a serious of risky investments which greatly reduce the value of his pension pot. When Mick challenges his adviser's performance, he is told that the markets are unpredictable and no investment is ever guaranteed to be successful.
Annuity vs income drawdown pension example
Mick works alongside his best friend Keith who has a similar final salary pension worth £75,000. Keith consults the same financial adviser and explains that he intends to buy a bar in Tenerife once he retires. Keith is advised to purchase an annuity as this is a low-risk option which will guarantee him the certainty of a monthly income following retirement. Unfortunately, the adviser does not explain that Keith will be unable to withdraw any of his pension pot once he has purchased his annuity – he will only receive funds by way of a monthly income. Keith only realises his predicament when he moves abroad and wishes to withdraw a lump sum to purchase the property for his bar in Tenerife.
The adviser failed to fully consider Keith's circumstances and recommend a suitable product. He should have recommended an income drawdown pension which would have allowed Keith much more flexibility with his pension pot. This product would have allowed Keith to withdraw a lump sum, with no penalties or fees, if and when required.
Remortgage or consolidate?
There are far cheaper ways to consolidate your debts than to remortgage your home, however, financial advisers often recommend this course of action as they often receive a commission from lenders for recommending their products. If you were advised to remortgage your property as a means of consolidating and repaying your debts then you may have a claim.
The product itself is not the only important factor to consider
Mis-selling and negligent financial advice can occur in relation to any investment product whether it is a mortgage, pension, shares, bonds, ISAs, annuities or trusts.
Each case is fact specific and the prospects of success will largely depend on whether the advice given at the time was considered appropriate in light of the individual's circumstances and their knowledge of the product and associated risks.
How do financial mis-selling claims work?
Essentially we follow a very simple three step process:
- If the company who gave you the advice is still trading then a formal complaint must be made, in writing, directly to that company in the first instance.
- If your complaint is rejected, or you do not receive a response, then a written complaint must be lodged with the Financial Ombudsman Service (FOS). The FOS have authority to award compensation up to £100,000 (please note it can take up to 6-9 months for FOS to carry out their investigations and issue a decision).
- If you are not happy with the response from the FOS then you can raise court proceedings and progress your claim by way of an action for damages.
How do I get started?
Thompsons Solicitors has a long-established reputation of fighting for justice. We can help you with each stage of the process, starting with drafting the initial complaint.
We will represent you on a No Win No Fee basis, with no upfront fee required.
Following an initial, free telephone consultation with one of our experienced solicitors, we will open up a file for you and get the ball rolling with our investigations.
We will need you to provide us with any documentation you have from the adviser/lender (both from the time the advice was given and afterwards). We will, of course, seek to recover paperwork directly from the adviser/lender, however, the period where they are required to retain your records may have passed and therefore records may no longer be available.
Contact Thompsons today
If you think you have been mis-sold a financial product, then we would urge you to get in touch as soon as possible. Strict time limits apply to complaints and claims of this nature.
Phone for a free consultation today on 0800 0891 331.