The Financial Ombudsman Service recently ruled in favour of the financial services provider (FSP) in Dispute 247048 because the dispute fell outside its terms of reference.
The outcome may have been quite different if not for a technicality. It’s a good reminder for financial planners to ensure that they explain to clients in a language they can understand how financial products work.
In this case, the applicant was a dairy farmer who described himself as a person with limited education and a limited ability to read and understand financial documentation. He managed his own financial affairs, but during the 2000s occasionally asked his son, a solicitor, for help. During this dispute, the applicant’s son represented him.
The applicant was seeking a refund of $37,486 on the premiums he had paid on a term life policy (the Policy) to the FSP. He stated that the representative of the FSP, referred to as Mr S, misrepresented to him that the policy was a superannuation plan which would be payable when he retired. He claims he was not told that he was purchasing a life insurance policy. The applicant and Mr S had been friends for over 30 years and the applicant trusted Mr S to act in his best interests.
The Policy commenced on March 12, 1992 and provided for a death benefit of $50,000 indexed. At the same time, the Applicant also signed an application form for a superannuation plan. Fees of $31.98 were deducted from the Applicant’s bank account each month. The Policy benefits ended on March 12, 2041. The applicant contributed $400 per month to the superannuation plan and stated that he thought he was making payments into two superannuation policies.
The complaint
Around the start of 2011, the applicant wrote to the FSP and said he wanted to cash out the policy. He then wrote to the FSP and asked why his account was still being debited. In March 2011 the FSP wrote to the applicant and explained that the death benefit was only payable on death and the amount of the sum insured was $82,362.00.
The applicant argued when he filled out the application in 1992, he was divorced, with no young children or responsibilities, so there was no need for the policy. He claimed he was advised by Mr S that he could cash out the Policy when he retired.
The outcome
The FSP argued that FOS did not have jurisdiction to deal with the dispute on the basis that the applicant had six years to lodge a complaint, from the time he first became aware, or should have reasonably been aware, he had suffered a loss.
FOS accepted the argument and stated it did not have jurisdiction to deal with this complaint.
The FSP argued that the applicant had to undergo a medical examination, which should have alerted him to the fact that it was part of the underwriting process.
While FOS accepted that the applicant had limited financial literacy and may not have understood what “underwriting” was, he would have been receiving correspondence and statements in relation to the policy for many years, which the applicant, by his own admission, did not understand and threw in the bin.
Mr S said he believed the policy was put in place as part of estate planning and was intended for the applicant’s daughter because the property and businesses would go to his two sons.
In finding for the FSP, FOS stated that the applicant could have asked for help to understand the documents being sent to him and he would have been informed that in addition to his superannuation plan, he was also paying premiums for a life insurance policy. There was no reason why the applicant did not realise he had not suffered a loss inside of the six-year period after he started paying for the policy.
Lesson for advisers
This decision is a good reminder of the need to ensure planners can always demonstrate that they have explained to clients in language they are likely to understand how a financial product works, including its features and benefits. Had this decision been raised inside the six-year period (in accordance with the FOS terms of reference), the outcome may have been different.
Rhett Das is professional standards manager at Associated Advisory Practices.
