The independent complaints body for the financial services industry, the Financial Ombudsman Service is coming down hard on companies that sell with profits bonds to clients without making them aware that Market Value Reductions are already being imposed.
The Financial Ombudsman Service will automatically dismiss complaints that solely relate to the imposition of an MVR but they will investigate complaints about investments that were recommended at the time when an MVR was already being charged on surrenders.
Our View
Whilst we agree that investors must be made aware of all charges and risks associated with an investment, the investor also has a duty to make themselves aware of all product features and risks to ensure suitability before investing.
With the increasing 'complaints culture' in the UK the Ombudsman could be finding in favour of claimants that had the risks explained to them but chose to ignore them. We fully appreciate that some investors will have to cash in their investment if unforeseen circumstances happen, but it is vital they understand and accept the nature and effect of Market Value Reductions.
In todays with profits market, Market Value Reductions are making these investments more risky than others. This is because all with profits companies have their own stance regarding when to apply MVR's and for how long and the decisions are not directly related to market movements. It is important for advisers to explain all of the gory details before allowing clients to invest.