The FSA says intermediaries must follow the Needler judgment on windfall benefits and the calculatio...
The FSA says intermediaries must follow the Needler judgment on windfall benefits and the calculation of compensation payments, except in cases where it can be proven the product was bought because windfall payments were the reason for choosing the product.
Guidance from the FSA which comes into force tomorrow largely backs last year's Needler case, which stated windfall benefits in scenarios such as demutualisation cannot be deducted from a client's compensation payments because the adviser was to blame for mistakes and the eventual complaint, not the special event.
However, the FSA does give some concessions through its policy report if the intermediary can prove through its sales records that the recommendation was based on a special event offering a windfall.
"Very rarely, firms may be able to say that the special event was expected at the time the customer was advised to buy the product, and that the adviser expressly recommended that the product be bought for this purpose," says the FSA policy document.
"If this is the case, then the firm does not have to give credit for the benefit the customer got, so it will pay less compensation. To protect customers, the firm has to prove, using its records from the time of the sale, that it is justified in doing this."
The FSA points out it was not a party to the Needler case, rather it was brought under the PIA Ombudsman's bureau, however, the judgment has implications for many Pensions Review and FSAVC Review compensation cases which have yet to be settled, and also has implications on future compensation calculations such as mortgage endowment mis-selling.
Tracey Mullins, director of public relations at the AIFA, is pleased that windfall benefits can be taken into account in some cases when calculating compensation, particularly as it is more likely to affect mortgage endowment cases, rather than pensions mis-selling.
But the AIFA still believes it is wrong to make a distinction between those advisers who recommend products based on possible windfall benefits and those who do not.
Past guidance on this issue came from the PIA in Update 33 entitled 'Pensions Review and Demutualisation Shares'.
At that time, the PIA said firms should ignore the financial impact of demutualisation when calculating financial loss or redress, but was "silent" about benefits received as policy augmentation or top-up, says the FSA.
Paul Bruns and Elaine Parkes
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