In one of those decisions, DRN 4405232, the FOS determined that contrary to the description of the service, the firm had in fact given advice.
Lucy Tolond and Kayleigh Martin, Partner and Solicitor at DWF, consider the decision below. The decision is a helpful reminder of the approach the FOS will take to assessing whether advice has been given, which will be fact-specific and can turn on minor differences between transactions. It is also timely: the FCA issued its joint discussion paper with the Treasury in December on the Advice Guidance Boundary Review and proposals for closing the advice gap (DP23/5). It is decisions like these that deny firms legal certainty when designing their propositions and business models.
The complainant, Mr C, said that he had been advised by an adviser acting on behalf of the firm to switch his pension from a Prudential fund into a fund managed by an entity connected to the firm. He said that the fund he had switched to was too risky for him, and had performed badly compared to his original fund. He said that he had been advised to switch because the fund was performing better than his existing fund. He said that he had agreed to the transfer following two meetings with the adviser and that the adviser had processed the fund switch on his behalf, using his login details.
The firm said that the adviser had only given information, not advice, to Mr C. The firm said that he had submitted the application to transfer after he had received a direct marketing offer from the firm, and that it would have been clear to Mr C (who was himself an FCA-authorised individual) that this was a non-advised transaction. The firm relied on the fact that Mr C had not been provided with a Suitability Report, or any other documents about the transfer. Whilst the firm accepted that the fund switch had been processed from the adviser's computer, it said that was only because Mr C had been having issues with his mobile phone. Whilst the firm did not rely on prior decisions (which are not binding under the FOS jurisdiction), the FOS had been prepared to accept in relation to other similar cases that no advice had been given.
The firm also said that, if the adviser had been giving advice, he had been in breach of his contract by not following the firm's internal procedures, which required Suitability Reports to be produced whenever advice was given – and that he therefore was not acting within the bounds of his authority, meaning the firm should not be held responsible for the adviser's acts.
The crux of the issue was whether the firm had been giving advice, and therefore carrying on a regulated activity under Article 53 Regulated Activities Order. 'Advice' requires an element of opinion on the part of the adviser, and is in effect a recommendation as to course of action. The FOS rejected the firm's argument that the adviser had not given advice because no suitability report had been produced. Whilst the COBS rules, which provide that a suitability report should be required, set out what firms should do, that does not mean that advice is only given if a suitability report has been produced. Furthermore, the definition of 'advice' in the Regulated Activities Order does not refer to a suitability letter, and nor does the definition say that advice is defined by being set out in writing. The FOS also rejected the suggestion that Mr C must have been aware that he was not being given advice.
The FOS also considered very carefully the question of how the application to switch had been made. Mr C produced evidence which showed that, at the time the transfer switch was authorised from the adviser's computer terminal, he was sitting at his own desk 40 miles away. The FOS therefore found Mr C's testimony more credible than the adviser's account of events. The FOS determined that the adviser had in this case recommended the fund switch, and had carried out the arrangements for that switch himself, using Mr C's login details.
On the question of whether the firm was responsible for the adviser's acts, the FOS carried out an analysis of the principles of common law agency. The FOS agreed that the adviser had been acting in breach of his agency agreement, and that he therefore did not have actual authority. However, the FOS was satisfied that he did have ostensible authority to act on behalf of the firm – not least because he appeared on the FCA register under the firm's authorisation. The firm was therefore responsible for his acts, and was required to pay any redress due to Mr C.
For further information, please contact Lucy Tolond and Kayleigh Martin
Lucy Tolond and Kayleigh Martin, Partner and Solicitor at DWF, consider the decision below. The decision is a helpful reminder of the approach the FOS will take to assessing whether advice has been given, which will be fact-specific and can turn on minor differences between transactions. It is also timely: the FCA issued its joint discussion paper with the Treasury in December on the Advice Guidance Boundary Review and proposals for closing the advice gap (DP23/5). It is decisions like these that deny firms legal certainty when designing their propositions and business models.
The complainant, Mr C, said that he had been advised by an adviser acting on behalf of the firm to switch his pension from a Prudential fund into a fund managed by an entity connected to the firm. He said that the fund he had switched to was too risky for him, and had performed badly compared to his original fund. He said that he had been advised to switch because the fund was performing better than his existing fund. He said that he had agreed to the transfer following two meetings with the adviser and that the adviser had processed the fund switch on his behalf, using his login details.
The firm said that the adviser had only given information, not advice, to Mr C. The firm said that he had submitted the application to transfer after he had received a direct marketing offer from the firm, and that it would have been clear to Mr C (who was himself an FCA-authorised individual) that this was a non-advised transaction. The firm relied on the fact that Mr C had not been provided with a Suitability Report, or any other documents about the transfer. Whilst the firm accepted that the fund switch had been processed from the adviser's computer, it said that was only because Mr C had been having issues with his mobile phone. Whilst the firm did not rely on prior decisions (which are not binding under the FOS jurisdiction), the FOS had been prepared to accept in relation to other similar cases that no advice had been given.
The firm also said that, if the adviser had been giving advice, he had been in breach of his contract by not following the firm's internal procedures, which required Suitability Reports to be produced whenever advice was given – and that he therefore was not acting within the bounds of his authority, meaning the firm should not be held responsible for the adviser's acts.
The crux of the issue was whether the firm had been giving advice, and therefore carrying on a regulated activity under Article 53 Regulated Activities Order. 'Advice' requires an element of opinion on the part of the adviser, and is in effect a recommendation as to course of action. The FOS rejected the firm's argument that the adviser had not given advice because no suitability report had been produced. Whilst the COBS rules, which provide that a suitability report should be required, set out what firms should do, that does not mean that advice is only given if a suitability report has been produced. Furthermore, the definition of 'advice' in the Regulated Activities Order does not refer to a suitability letter, and nor does the definition say that advice is defined by being set out in writing. The FOS also rejected the suggestion that Mr C must have been aware that he was not being given advice.
The FOS also considered very carefully the question of how the application to switch had been made. Mr C produced evidence which showed that, at the time the transfer switch was authorised from the adviser's computer terminal, he was sitting at his own desk 40 miles away. The FOS therefore found Mr C's testimony more credible than the adviser's account of events. The FOS determined that the adviser had in this case recommended the fund switch, and had carried out the arrangements for that switch himself, using Mr C's login details.
On the question of whether the firm was responsible for the adviser's acts, the FOS carried out an analysis of the principles of common law agency. The FOS agreed that the adviser had been acting in breach of his agency agreement, and that he therefore did not have actual authority. However, the FOS was satisfied that he did have ostensible authority to act on behalf of the firm – not least because he appeared on the FCA register under the firm's authorisation. The firm was therefore responsible for his acts, and was required to pay any redress due to Mr C.
For further information, please contact Lucy Tolond and Kayleigh Martin
