IFAs have raised concerns a new bonds mis-selling claims service will further damage the industry's reputation and exacerbate the so-called "compensation culture".
Bondcompensation.com – a Brunel Franklin Group company – is the newest consumer claims management service to hit the financial services industry.
Information on its website suggests investors could be a “victim of bond mis-selling” if they have "ever been advised to move money from a low-risk account into a higher risk investment bond, only to find the returns [they] received have been a lot less than expected".
Examples of bonds which it says could be subject to mis-selling include with-profits, fixed term investment bonds, growth bonds and capital investment bonds.
Mary Childs, director of Arch Financial Planning, is concerned more companies will “jump on the bandwagon” and offer this kind of service, which could result in a “compensation culture” similar to the one created by endowment mis-selling complaints firms.
She adds: “Such companies give IFAs a bad reputation and put them as the bad guy.”
Moreover, Peter French, IFA at Troy French and Partners, suggests an increase in negative publicity will cause even less people to save because, he argues, the existence of complaints firms has had “a dramatic effect on savings with appalling consequences”.
French is hopeful the proposed Compensation Bill - which requires complaints firms be registered - will lead to big improvements, but he says a problem could arise in relation to investment bonds if the Financial Ombudsman Service (Fos) fails to recognise when consumers are given clear product literature.
He argues the question as to whether consumers are informed about a product’s risks is an open one, so relying on “conventional wisdom” could be risky for IFAs.
By contrast, Adrian Seager, IFA at Alexander Price, suggests there is “not much of a market” for bond mis-selling firms because IFAs are required to spell out the risks and rewards of each product.
But, he says a problem could arise from the selling of with-profits because some providers do not make it clear in their product literature what the market value adjusters are.
He adds: “Whether there is clear enough information is not about advice, but this will probably be another headache and cause further damage to the industry.”
Fay Goddard, deputy director general at the Association of Independent Financial Advisers (Aifa), says the emergence of the bond mis-selling complaints service is "typical of ambulance chasing behaviour".
She believes any firm which actively encourages people to complain is not behaving in a fair and balanced way in the marketing of its services and that further regulation is needed.
Moreover, she points out consumers are paying complaints firms even though they have "a perfectly good Ombudsman service" which is free to use.
Ian Allison, claims director for Brunel Franklin, says the firm decided to offer a bond mis-selling complaints service largely because of customer feedback, which suggested customers would like to use the firm for claims relating to financial products other than endowments, including investment bonds.
He states: “Whilst the endowment compensation industry has largely been tarred with the ‘unregulated cowboys’ brush, Brunel Franklin has concentrated on providing an excellent customer service, investing heavily in human resources and IT systems to speed up the claims process and keep clients informed every step of the way.”
He says Brunel Franklin is proactively participating in regulation and good practice initiatives on a voluntary basis during the gap between the introduction of primary and secondary legislation in respect of the Compensation Bill and will be discussing such matters at the Department of Constitutional Affairs (DCA).
He adds: “This process is primarily designed to squeeze unprofessional claims companies out of the market.”
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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