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The Financial Ombudsman Service (FOS) resolves disputes between financial service providers and consumers. The best way to avoid or defend a dispute is to provide good quality advice.

According to FOS, good quality advice means you have:

  • Made reasonable enquiries to understand what your client needs; and
  • Made sure your client understands the products or strategy you’ve recommended.

In this post, we’ll explain what this means in practice.

Understand your client’s needs

To understand your client’s needs you must ask plenty of questions. These should give you a clear understanding of their objectives. To show that you have understood your client’s objectives write them down in both their words and yours.

Risk profiling tools can help you fact find but they should not be the only thing you do when creating your recommended strategy.

Your client understands your advice

When you recommend a product or strategy, it’s important that you make sure your client understands it and how it affects their objectives.

It’s not enough to send your client the PDS. You must help them understand the product. There are two ways you can do this:

  • Best practice is to tell your client in person or on the phone and confirm the conversation in writing or in an SOA; or
  • Write a letter to your client that clearly sets out the risks of the product. This is usually enough unless you know that your client is unlikely to read it.

You don’t have to explain every benefit and disadvantage of a product to them but you must clearly explain its costs and benefits in words your client understands.

This is particularly important if the product does not meet all of your client’s needs. For example, if you’re an insurance broker you should tell your client if the policy excludes something they’ve said they need. The only exception to this is if the policy excludes something obvious, like wear and tear.

If you recommend a product that’s inconsistent with your client’s risk profile, make sure it meets their needs and explain the risks to them.

If you give your client an SOA, FOS expects this to be tailored to your advice and their level of financial literacy. You can use a template SOA but it’s important to make sure it suits your advice and your client. It’s very difficult to convince FOS that you’ve given a client the right strategy and product for them if the SOA is incorrect, missing information, or has too much unnecessary information.

What happens when a complaint is made to FOS?

If your client makes a complaint, you may need to give FOS the following information:

  • The terms of engagement;
  • Any FSGs or PDS’ given to your client;
  • Any fact finds, needs analyses and research that you completed;
  • Correspondence between you and your client including instructions and emails;
  • Your file notes and details of phone conversations; and
  • Records of your discussions with insurers or other product providers.

As a matter of practice it’s important to make sure this information is complete and easy to access.

FOS can ask you to compensate your client if they believe you’ve breached your duty to give good quality advice and your client has suffered a loss. The compensation may restore your client to the position they would’ve been in if you hadn’t breached your duty.

You’ll not be expected to compensate a client if their needs couldn’t be reasonably met. For example, if there’s no cover ‘reasonably available’ for a particular risk, you won’t be asked to compensate your client. When deciding whether the cover was ‘reasonably available’, FOS will look at whether:

  • The cover is uncontroversial - For example, if your client wants a contents policy and you tell them the wrong limits you may need to compensate them. This is because the cover was available;
  • The cover is not available - For example, life insurance is generally not available for certain pre-existing conditions;
  • The cover might have been available - If this is the case, you’ll need to prove that it wasn’t available to your client.

To help your advisers produce good quality advice consistently, The Fold’s Financial Adviser Manual and Insurance Broker Manual may be helpful. These give you step-by-step guides to the financial planning and insurance advice process.

We also have a Statement of Advice template that has been created specifically for financial planners and accountants. You can use this as a base to document the advice you give to your clients.

If a client does complain to FOS and you’re not sure what to do, get in touch. We’d be happy to help.

Author: Jonathan So

May 2018

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