After the excesses of the festive period, many commit to New Year resolutions such as the perennial favourites of loosing weight and changing career. It is also a time for returning unwanted purchases. This might include financial products.
Financial products lack the tangibility of physical products and any problems with them may not become apparent until long after the sale. This raises issues of limitation, date of knowledge and foreseeability, amongst others. There is often asymmetry of documentation and product knowledge; the product vendor’s knowledge and documentation regularly being more thorough than the client’s. The first a vendor may know of a problem is when a complaint alleging a mis-sale is received.
While any expression of dissatisfaction, whether warranted or not, should cause the financial product vendor to engage its complaint resolution process. This does not always lead to a satisfactory determination, and financial disputes can be costly both financially and in terms of reputation. The reporting of complaints- and their time to resolution- must also be regularly reported to the regulator, The Financial Conduct Authority (FCA).
What is a financial product vendor to do to distinguish between a genuine mis-sale or buyer’s remorse? What is a purchaser of a product to do, if they believe they have been mis-sold a financial product?
There are potentially significant consequences for both parties. For the aggrieved customer there is the financial loss and resultant implications. For the product vendor, in addition to the aforementioned reporting requirements, there is the overhead in addressing complaints. Additionally insurers may need notifying and changes made to products and processes, as well as potential financial and reputational losses. Both parties may incur further costs if a complaint escalates to litigation.
It is perhaps cynical to think that complaints and allegations of a mis-sale only occur when a product underperforms in the customer’s eyes. It is quite possible for there to have been a process failure and for the customer not to have suffered loss, but the product vendor may need to address operational and process issues.
However, a complaint and allegation of mis-sale is perhaps most likely where a customer is disappointed with the returns they have received.
Is this buyer’s remorse, or was the customer mis-sold?
Discerning the difference can be remarkably difficult and not finding an early resolution may be expensive. Inevitably, the views of the parties will be conflicting and hindsight and emotion may cloud the issues further.
The FCA publishes comprehensive guidance as to how regulated financial business should be managed. Clearly adherence with the rules is a given. Thorough documentation and record keeping is key- not only by the product vendor, but also the purchaser. As noted, often there are scant records kept by a client and perhaps only the documentation provided by the vendor at best has been retained.
The product itself and circumstances of the sale will all need to be examined to reach a determination. A problem for the vendor is that their internal complaints management process, no matter how thorough, may not be trusted by the complainer particularly if the outcome is not in their favour. The Financial Ombudsman may be a route to resolution, particularly in lower value disputes. Nonetheless, formal proceedings may commence even where modest sums are in dispute.
Which product or service was sold and why it was chosen and for whom, will be important. Was it a one off transaction, was it an ongoing service, did the client understand it sufficiently, is there a fiduciary duty, were the risks explained, what duties were owed to the customer? These and a potential myriad of other factors will need to be taken into account.
At the root of financial disputes is a loss, whether real or perceived. Quantification of this actual or supposed loss can rapidly assist in evaluating the merits of a claim. Whether the client was being advised and whether they were classified as retail or professionals can help establish the regulatory protections available. These categorisations are not fool proof and may be an intrinsic element of a disagreement.
The issue of advice can be problematic. Products may be sold on: an advised, execution only or non-advised basis. In an advised sale, the responsibilities of the salesperson are greater as are the protections for the customer. With execution only, the client will instruct directly as to what is required. In the latter non-advised situation, the statements made by the salesperson may be only recommendations, but may inadvertently cross the line and become advice. Where documentation may state that no advice has been given, many clients are still confused as to whether they have been advised or not, as may be the casual observer. What is advice and what is salesmanship is a matter of judicial interpretation. For example the recent judgement in Thornbridge Ltd v Barclays Bank PLC1 considered the line between salesmanship and advice, as well as whether relying on any potential advice would have made any difference.
Financial products have, perhaps rightly, a reputation for opacity. The skill of the product sales person is to match the right product to the right client’s circumstances. This may be through an explicit or implicit recommendation, or by providing choices for the client to make. This subjectivity leaves room for uncertainties to emerge. The technical details and product features may be lost on many. Additionally many clients find financial products dull and take a ‘head in the sand’ approach and are perhaps not critical enough in their trust of the sales person. It may only be when something has gone wrong, or they have a nasty surprise, that curiosity rises and a complaint may follow.
What can the product vendor do to prevent mis-sale allegations? What can the customer do to ensure they have bought the right product?
The basic steps may seem obvious: rigorous adherence to the regulations is key. Making the basis of sale explicitly clear, both verbally and in documentation will help to avoid confusion or miscommunication. Clients also need to be proactive and accept that higher returns entail higher risks. Detailed record keeping will help ensure that hindsight doesn’t colour the memories of complainants.
The regulation of financial products is well documented, but there continue to be many disputes based on alleged mis-selling and negligence. Adherence to basic rules might ensure that there are fewer complaints and happier customers – or at least less disappointed ones. Both parties should perhaps also accept a piece of market wisdom when reviewing investment positions at this time of year: the best time to buy (or sell) was always last year.