Guidance published by the Financial Ombudsman Service suggests compensation claims against the use of market value adjustments are only being awarded in cases where bad advice led with-profits investors to lose valuable income.
Latest edition of the FOS Ombudsman News suggests the ombudsman service has received several complaints from clients about the application of MVAs on their with-profits policies.
Much of the evidence presented indicates consumers do not understand how the MVA works or were never aware they could be applied to policies to stop policyholders withdrawing money from the with-profits funds.
In order to assess whether the client has been missold, the FOS says it is “looking to see whether the firm’s policy documents stated clearly that MVAs might be applied and explained the effect they could have. We also look at the investor’s circumstances and requirements at the time of the advice, to see if that advice was appropriate.”
In cases where it is clear the investment advice – to invest in a with-profits product – was suitable, the MVA was correctly applied and the policy gave clear information about possible MVAs, the FOS stresses it will NOT uphold the complaint.
Case studies presented by the FOS show the type of scenarios where it would uphold a complaint are those in which pensioners looking for additional investment income are advised to invest in with-profits policies, but later find a cut in bonus rates leaves them with very little or no income.
Other scenarios – such as one where the client accused the firm of “jeopardising her future livelihood” – have been highlighted by the FOS as being ‘rejected’ where the client shows evidence of knowing the risks of medium-term capital lock-in investments.
In other situations, simple advice by either an adviser or the insurance firm is likely to prevent the complaint from going any further, suggests the FOS, as once it is properly explained to the client the MVA is not necessarily a drop in the value of this policy, complaints have tended to be withdrawn because the policy is likely to have risen in value rather than fallen.IFAonline
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