The Client Who Could Not Understand the Product
Mrs. Dimitrova, aged 68, is sold a 15-year unit-linked life policy with a single premium of BGN 50,000. The broker, Ms. Koleva, presents a glossy projection showing a 6% annual growth scenario and a "guaranteed minimum" of BGN 50,000. In fact the product has no capital guarantee; the "minimum" is only a death benefit equal to the premium paid, and the 6% figure is an illustrative, non-guaranteed rate. Mrs. Dimitrova signs after a 20-minute meeting. She later complains she believed her capital was protected and that she could withdraw at any time without charge; the policy has a 10% early-surrender charge in the first five years. The firm's records show only a signed application form, no suitability assessment and no record of the risk discussion.
1. Identify the conduct failures by Ms. Koleva and the firm under consumer-protection and distribution rules.
Read the worked answer
Failures identified:
- Misleading presentation - describing a non-guaranteed projection as if it were a guarantee, and presenting a 6% illustrative rate without clear warning that it is not guaranteed. This breaches the duty to act honestly, fairly and professionally and to provide clear, fair and not misleading information.
- No suitability/appropriateness assessment - a 15-year unit-linked product sold to a 68-year-old without assessing needs, risk tolerance, time horizon or financial situation. The record is missing, which is itself a breach of the record-keeping duty.
- Inadequate disclosure of charges and exit costs - the 10% early-surrender charge was not explained, so the client could not make an informed decision.
- Inadequate time and information - a 20-minute meeting for a complex product, with no documented risk discussion, undermines informed consent.
- Vulnerability - age and apparent misunderstanding required enhanced care.
Judgement point: The test is not whether the client signed, but whether she understood what she was buying.
2. What should the firm do now, and how should the complaint be remedied?
Read the worked answer
Immediate steps:
- Log and investigate the complaint under the firm's complaints procedure within the required time limits.
- Reconstruct the sale from all records; the absence of a suitability assessment weighs against the firm.
- Review whether the product was suitable for a 68-year-old with a 15-year horizon; if not, the sale was unsuitable.
Remedy: Where the client was misled about the guarantee and the exit charge, the fair outcome is generally to put her back in the position she would have been in - i.e. cancel or unwind the policy and refund the premium and charges, rather than simply explaining the terms again. The firm should also:
- Retrain Ms. Koleva and review her other sales.
- Correct marketing materials that imply a guarantee.
- Improve the suitability and record-keeping process.
Principle: Consumer protection focuses on outcomes, not just paperwork. A signed form does not cure misleading advice; the firm bears the consequence of the information gap it created.