New disputes have erupted between clients and IFA firms over endowment mortgage mis-selling compensation calculations, suggests the Financial Ombudsman service.
Guidance set out in the February/March edition of FOS’ Ombudsman news indicates adviser firms are struggling to ascertain and explain how compensation should be paid in cases where clients have switched to repayment mortgages but kept their endowment policies going.
According to the FOS, there are a "small but increasing number of disputes where, because the customer’s circumstances are far from straightforward, the [IFA] firm has been unsure exactly how to work out the correct amount of compensation".
A key question to consider when calculating the compensation is why>the client has continued to pay premiums on their endowment, says the FOS.
One case highlighted by the FOS says in cases where the complaint was first rejected by the firm and later upheld by the firm, the adviser is required to pay additional interest from the period at which the complaint was made as well as refund the premium payments made after that date – on top of the usual RU89 calculations – because the client believed he only had to continue paying premiums while the complaint was being dealt with.
Another dispute case highlighted by the FOS, however, points out in situations where the client was warned of potential shortfalls on their mortgage and then chooses to switch to a repayment mortgage at an early stage, intermediaries only have to pay compensation up to the time the mortgage was switched, even if the client then chooses to continue the endowment as a savings product.
"We explained that the firm was only accountable for the loss that had occurred while he was using the policy to repay the mortgage. It had been entirely Mr M's choice to continue paying in to the policy, as a means of saving, after he had switched to a repayment mortgage," says the FOS.
In situations where the client keeps premium payments going between mortgages – ie where the client has sold a property and maintained the policy for the purpose of paying for a mortgage later – the advisers is required to calculated compensation for the entire duration of the policy, says the FOS.
An example offered by the FOS suggests a client who took out an endowment mortgage in 1996 and then sold the property in 2000 because he was moving abroad is entitled to receive compensation based on all premiums paid because the intention was to use the policy to buy a new property on his return to the UK in 2001.
Aside from explaining how to deal with endowment compensation disputes, the Ombudsman also answer IFA questions about charges for case fees.
Having previously pointed out an adviser will not have to pay a fee where the complaint is dismissed without consider of its merits, the FOS now clarifies it will still charge a case fee if it is not "readily apparent" from the very beginning the complaint has not suffered any financial loss or material inconvenience.
A case fee will still be charged if staff are not immediately able to identify such cases early in the process, says the FOS.To read more about this or other FOS issues - this month covering insurance disputes, extending repayment mortgage terms and a satisfactionsurvey on the FOS - click thru the FOS website link.IFAonline
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