Questioning the Financial Ombudsman Service’s (FOS) Approach

The Financial Ombudsman Service (FOS) plays a crucial role in resolving financial disputes, particularly in cases involving Defined Benefit (DB) pension transfers. However, a recent decision highlights a fundamental reasoning error that raises concerns about how FOS evaluates cases.

This article examines the flawed logic behind some of FOS’s rulings and the potential consequences for financial advisers and clients.

The Core Issue: Misinterpretation of Risk

1. FOS Assumes Risk-Free Outcomes Should Be the Baseline

• When evaluating DB transfers, FOS often assumes that the starting point for advice should be a risk-free outcome.
• This ignores the reality that pension planning inherently involves trade-offs between security and flexibility.

2. Failing to Consider Individual Objectives

• FOS tends to use hindsight bias when assessing whether an individual should have transferred.
• It overlooks the fact that many clients had specific reasons for choosing a transfer—such as greater flexibility, inheritance planning, or concerns over scheme solvency.

3. Over-Reliance on Generic Assumptions

• Many FOS decisions are based on broad industry norms, rather than case-by-case assessments.
• This leads to inconsistent and sometimes unfair outcomes, as it fails to acknowledge individual risk tolerances and goals.