A ruling on the suitability of a mortgage endowment policy will depend on whether it exposes the customer to a risk they were unwilling to take, says the ombudsman.
The Fos has produced a technical note on mortgage endowment complaints which outlines the typical approach it takes in any particular case.
It explains there is a risk mortgage endowment policies will not grow sufficiently to repay the mortgage at the end of the term, and most customers say they were not aware of this and would not have chosen this type of mortgage if they had been told of the risk.
The Fos says it would be unlikely to uphold a complaint if it is satisfied the customer was willing, and in a position, to take the level of risk presented by the policy sold, but it would probably uphold a complaint if it is satisfied the customer was not willing to take a risk, whether or not they were in a position to do so.
The ombudsman uses documentary evidence from the time of the sale, together with knowledge obtained about the customer’s circumstances at the time, to form a view of:
- What happened at the time of the sale;
- What was likely to have been discussed; and
- What the customer’s appetite for investment risk was likely to have been.
If a firm cannot produce point-of-sale paperwork, the Fos says it will consider all the circumstances to reach a view of how likely it is the particular customer knowingly accepted the risks inherent in the policy sold.
Although firms may have ‘attitude to risk’ (ATR) questions in their factfinds, the ombudsman says it will make a decision on what is fair and reasonable in the circumstances.
It states: “So we must decide what the customer’s actual understanding of, and attitude to, risk was and whether the recorded ATR is a true reflection of that at the point-of-sale.”
Other documents the Fos will consider include illustrations, product brochures and key features, and letters to the customer explaining why the product was suitable.
It will also consider execution-only statements if the terms are clear, but it will not take them at face value and will consider the statement in light of the customer’s overall circumstances.
It states: “If the customers appear to have been experienced investors we are likely to conclude that the execution-only sale was an appropriate course. If the customers do not appear to have had any particular or unusual knowledge of investment, we will investigate further – usually by asking both the customer and the adviser why the execution-only course was considered appropriate.”
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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