IFAs who are acting on an execution-only basis must make this clear to consumers at the outset because there is no "half-way" house of "partial" or "limited" financial advice, according to the Financial Ombudsman Service (FOS).
The FOS says it has received complaints about the inappropriate sale of investment products where firms claim, incorrectly, they acted on an execution-only basis and are not responsible for the suitability of the product because they only provided “limited” advice.
But, the FOS states: “In our view there is no ‘half-way’ house of ‘partial’ or ‘limited’ financial advice as far as sales to private clients are concerned. Unless the sale was clearly carried out on an execution-only basis, then the firm was under a duty to provide suitable advice.”
It says a firm carries out transactions on an execution-only basis if the customer asks it to sell a specific, named investment product without being prompted or advised, and written evidence would normally be required in disputes referred to the FOS showing the firm:
- Gave no advice; and
- Made it clear at the time of the sale it was not responsible for the product’s suitability.
In addition, the FOS would have to be satisfied there was no evidence the customer was misled.
Emma Parker, a spokeswoman for FOS, says: “IFAs must be clear on what basis they have given advice. If it is execution-only they must make it clear at the outset to avoid confusion.”
One case referred to the FOS involved a customer contacting his IFA about a high-income bond he saw in the press, which he said would provide his main source of income.
The IFA gave a positive opinion, issued the client with an application form and said the transaction had been done on a limited advice basis.
But, when the customer became concerned about the product and referred it to the FOS his complaint was upheld. The FOS said advice had been given and, further, the investment was not suitable for the customer.
The FOS says most cases referred to it which involve this issue relate to sales by IFAs that took place before 1 December 2001 when the Financial Services and Markets Act (FSMA) took effect.
It adds that the provision of basic advice is not relevant as it applies only to the sale of stakeholder products after April 2005.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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