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Will the FCA stop the rise of the claims culture?

The rise of the claims culture continues unabashed, dismally trumpeted by a blitz of automated phone messages instructing that we should all claim compensation for PPI missales – via the caller, of course. The surge in newspaper adverts on misselling has also plumbed new depths of shamelessness and deceit.

This relentless push is inspired by the unrelenting Americanisation of the UK but part of the responsibility lies with the current and previous regulator which derived vigour from portraying the consumer as always on the end of a scam and of implying that such scams emanated from all parts of the industry.

In addition, the appetite of the FOS for publicising its services at every turn also lends itself to the accusation of claims incitement. The US effect is incorrigible and may be impossible to reverse but the negativity of bad regulation can be, maybe not just yet though.

During the last week, my office has received six automated calls where the recorded message, in friendly newsreader tones, assured me that I am able to claim for my PPI missale and my recent injury, dodgy pavement if I remember rightly.

Disturbingly, this torrent of misinformation works, as confirmed by the FOS in its recent newsletter which highlighted that 45 per cent of PPI claims stem from third-party introductions.

Some weeks back, a long-standing client telephoned me declaring that she had received a phone call about claiming for missold PPI insurance. “And why are you phoning me”? I asked. “So that I can make a complaint”, she explained.

I enlightened her that she did not have a PPI plan and she dutifully accepted this terrible reality and ended the call.

One the plus side, I can say that at least this unremitting tosh is specific and normally enables listeners to judge whether or not they are, or think they are, affected. Other, even less savoury claims-mongers, are taking their advertising to new subterranean levels. This suggests desperation or perhaps the road to wealth. No doubt this will become clear in due course.

Last week, while scanning a London evening paper, I chanced across a big claims-monger advert advising me that I could be “owed thousands without even knowing it”. Excited by this good fortune, I avidly read on. It explained that its business is “winning compensation for holders of life policies and investments – whether or not you believe there is a problem with them”.

Apparently, any plan taken out since April 1988, when regulation first reared its head, is fair game. The advert focused on the direct-sales companies, banks and building societies which we know are easier targets than IFAs.

Could this focus be down to IFA sales practices being superior? Or could it be due to the disagreeable practice whereby some insurers pay compensation to a certain level without bothering to investigate? Both, I would conjecture.

So, will the Financial Conduct Authority take up the FSA’s baton and continue to espouse the fiction that misselling and bias is endemic throughout the industry or will it seek to provide some kind of balance? The FSA’s recent Approach To Regulation paper advised six regulatory principles, one of which states “that consumers should take responsibility for their decisions”.

Now just imagine, if that ever should occur, there would be no claims-mongers, far fewer staff at the FOS and whatever regulator is in temporary existence and a conse-quent reduction in fees.

Alan Lakey is partner at Highclere Financial Services

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Comments

There are 15 comments at the moment, we would love to hear your opinion too.

  1. I think I will sue my milkman. He advised me full fat milk tasted much better than semi skimmed. This resulted in me becoming obese because I always eat 3 bowls of cereal with my morning milk.
    If it were not for his advice I would not have this weight problem. Even though he delivered my milk in all sorts of weather I feel aggrieved that I bought full fat on his advice. Surely it was not my responsibility to look after my own health.

  2. The FSA and FOS have acted shamefully over the past few years, hugely exaggerating the scale of mis-selling of most financial products (PPI is an exception) and encouraging people to claim for bad advice.

    Unfortunately, there is a large percentage of the population who are intrinsically dishonest and feel no guilt about lying if there is a few bob in it for them.

    Claims Management companies should be closed down. Any individual only has to fill in a simple form or write a couple of half-intelligible sentences to have a complaint investigated by the ‘offending’ party and the Ombudsman. Why do we have to put up with the liars, cheats and fraudsters who make up the Claims Management companies ?

    Moreover, whilst people who have suffered from poor advice should not be discouraged from claiming, the FSA and FOS should make it clear that anyone found to be lying when chasing compensation is guilty of fraud and will be dealt with in an appropriate manner – jailed.

  3. In an ideal world, the client would listen to everything we say, read everything that we send and not suffer from selective memory. Unfortunately, the real world is tarnished by the claim mongers.

  4. Matthew Whiting 12th July 2011 at 5:54 pm

    The mis-selling of PPI is all down to Claims Management Companies is it? And tighter regulation would stop all mis-selling would it? Have we forgotten the pension mis-selling issues and the endowment mis-selling issues, not to mention the mass mis-selling of Bonds by certain high street banks or were these all in the imagination of the regulators and the general public?
    To blame CMC’s as the only people who are making money out of financial services is ridiculous. If banks (and dare I say it) IFA’s didn’t mis-sell products in the first place then there would be no CMC’s. CMC’s are simply highlighting issues that are there, we aren’t making them up.
    What I think this article is saying is that no one has been mis-sold anything and no one is due any form of refund and all these poor IFA’s who are working purely for the benefit of their clients and are not taking any commissions or fees for the work they do should be left alone to carry on the almost charitable work they do and if you find you aren’t covered under that insurance policy you bought dont blame them because they didn’t advise you to take it out did they?

  5. Julian Stevens 12th July 2011 at 6:08 pm

    Hmmm, for once I disagree with you Alan. Consumers by and large can’t be held responsible for their decisions UNLESS they’ve been properly informed of all the relevant facts and informed of those facts in terms that anyone of average intelligence could reasonably be expected to be able to grasp. And herein lies the problem, because illustrations and product literature have become so voluminously compliance-driven that nowadays they’re all but unreadable for the ordinary lay person.

    What is needed are single page bullet point frontispieces that say simple yet fundamental things like The value of investments in funds of this type will go down from time to time as well as up. This will not mean you’ve lost money unless you panic and cash in at an inappropriate time. After funds go down in value, they commonly go back up again, though this can sometimes take several months or even longer. You need to approach investments of this type as a medium to long term proposition, which means at least five years. And so on ~ but keep it to no more than 10 bullet points.

    In a world that’s plainly become over-regulated or perhaps driven by a regulator unable to grasp the idea that less can often be more, we seem to have lost sight of how to communicate our message in simple terms. So what happens is that the people selling products are under pressure to skip through the explanations as quickly as possible, buyers fail to understand what they’re buying into, nasty surprises emerge a few years down the line and so the customer complains.

    Why can’t the FSA see this and engage constructively with the industry to try to find ways to address the issue? No honest professional would argue against clients being fully and properly informed about products before they commit money to them. But clearly, the product information supplied to prospective purchasers needs some sort of supplementary precis to pick out what really are its Key Features, because very few KFD’s really fit that description very well any more. It’s a case of not being able to see the wood for the trees.

  6. I completely agree with Julian Stevens. The regulator and our industry is so up itself it is unbelievable. One page bullet points would be sufficient showing charges, risk, projected returns and what the product is supposed to do would be sufficient. Instead we churn out 22 pages of KFI for a single invesment into a Fidelity Funds Network Plan.

    Roll on 2016 when all this will be behind me!

  7. Long ago I studied British Constitution. It was explained that the principle of government decision making was that civil servents advise, ministers decide.

    That is how financial advice should work. Our role should be to help customers make an informed choice but that they have to take responsibilty for either accepting or rejecting our advice.

    I think whatt advice can offer has been oversold. The public believes that if something goes wrong, i.e. they lose money then the adviser is to blame. If I could predict the future with 100% accuracy would I bother working?

    The FSA has some responsibility in insisting that full advise means making a recommendation. If you just give options it’s just information.

    Well consider all the different ways you can take income form a pension fund.It’s possible that you can say one or more option are definately not suitable but of those that remain one will turn out to be the best result.

    So when the client asks what should they do, true advice is telling them that only they can make that decision. we can help them make an informed choice but the final decision must be theirs.

    A complaint would then revolve around the issue as to whether we enabled the client to make an informed decision

  8. The adviser’s would state that mis-selling is partly down to the consumer wouldn’t they. The sales quality departments within these advisers’ organisations are, more often than not, governed not by the compliance department but by the sales director whose responsibility is to expand the sales books by as much as possible. After all, failure of this task would result in a lesser bonus & Less income for the employer and that’ not satisfactory, is it?  Having assessed various product sales, in house, for a number of providers, poor record keeping, the advisers misinterpretation of clients needs, product details, attitude to risk & costs are all fundamental to mis selling. In the past, target  & commission driven sales have given the industry a tarnished reputation that should have been cleaned up as a lesson from the previous endowment & pension mis-selling scandals. The FSA’s instigation into pension switching, for sales since 2006 are a prime example, structured products for grannies who have only ever invested in cash are another. Not to mention the FSA’s current requirement for firms to revisit their back-book of investment sales, with another potential review in the pipeline. Some adviser’s do provide good, clear, well presented & hollistical advice, but sadly, from experience, they’re equally balanced out by those who don’t, won’t or can’t. Hopefully RDR will go some way to resolving this !!

  9. The regulation paper advised that “regulatory principles should include that consumers should take responsibility for their decisions”

    Does this mean that even Pants have lucid moments.

  10. It’s always someone else’s fault. There are we know some crap ‘advisers’ be they masquerading as IFA’s,bank wallahs or whatever. A sales culture will never put the clients interest first – how can it?

    As a consequence it is logical that mis-selling will arise and this is where the regulatory bodies have failed. The focus has always been on product sales, dressed up as ‘advice’ but in reality it is a ‘product first’ approach. Commission payments have further queered this pitch as they confuse the client/adviser relationship even where there is a genuine intent to offer good independent advice.

    So when the various regulators then further artificially [and often retrospectively] apply a set of ‘principles’ or ‘guidance’ which is formulaic in nature – hey presto there is within a very short space of time, an industry spawned to point out that firms did not comply with such principles or guidance and thus cry ‘compensate’. For a percentage of course. And how could the firms’ have complied in any event as the quasi-rules did not exist at the time?

    Add to this mix, a make it up as you go along approach from the ‘F’s’ and the complaint-mongering industry is going to thrive. Caveat emptor is a basic premise of English Law but unfortunately the regulators have power/ability to over-ride centuries of precedent.

  11. There are two parties at fault here, the regulators and the regulated, without one you can’t have the other yet they don’t seem to work very well together do they? The regulated make a mess and the regulators point at it with eyes raised to heaven and the regulated tell them it was their fault for not regulating properly.

    Does anybody remember the days before regulation? It was before the regulated existed and I can remember the enormous mess back then that we didn’t have any regulators to point at.

    Where was I? Er… ah yes. What has regulation done for society? Apart from create an entire industry based upon the nebulous concept known as compliance. Compliance with what?

    The regulators and the regulated are like a bunch of Mexicans dancing around the consumer’s hat, the regulators have all the evidence they need to prove their existence is justified while the regulated appear to be completely unable to tell the world how wonderful they are, how satisfied their clients are.

    So, come on you regulated, is there no good news? Just a lot of moaning on blogs to amuse the regulators?

  12. I agree with Julian and Bob on the issue of “Key Features” are effectively a misnomer now since they went from being 4 pages to 40, they are more like a Product Brochure now.
    I am concerned as Alan is about the increase in spurious complaints and can udnerstand Matthew Whiting’s comments. As with most things, the rules exist to nip spurious complaints in the bud NOW, without putting of legitimate complaints (and PPI definately was a systemic missale, but prettyt much without involement of IFAs) it is simply a matter of willingess on the part of the FOS and FSA. Ms Ceeney has commented on the excessive use of CMCs (They are needed in soem cases, but not to the extent that the consumer is using them and arguably NOT to put the initial case to the FOS, but perhaps once an ajudicator has looked and rejected and before being referred to an ombudsman).
    My point about the tools to nip this in the bud stem from suomething I picked up whilst doing my Diploma (The only useful bit of R01, Regulation adn ethics),in AVIVA’s R01 study notes, in the FOS section it says “The FOS cannot award the respondent costs against the complainant, BUT can charge the complainant its own costs if the complainant’s conduct has been improper or unreasonable”

    Ms Ceeney has been quoted (I think by MM) being critical of the rise in CMCs and complaints which are put aside becuase they have been manufactured. Can MM ask her as head of the FOS, just hwo many clients have been charged the FOS’s costs for improper or unreasonable complaints? It would soon nip it in the bud by doing that once or twice and could result in the less reputable CMCs having thei licence from the ministry of justice removed.
    For Matthew Whiting, that would mean less competition, so I’d be interested to know if he would agree with the FOS making a few examples?

  13. Sorry about the spelling, but hopefully you got the point!

  14. The trouble is, some of us ‘clients’ are being given advice that is wholly inappropriate to our needs (even though these have been explained at length beforehand). and, to make matters worse, are asked to pay for it! We have every right to use the FOS. I also agree with the comment about advisers/customer services/credit control depts being driven by sales figures and ignoring compliance. From my recent experience even so called ‘reputable’ companies have a policy of not even waiting to hear what the FOS has to say before they start harrassing customers for payment, suggesting that the FOS has ‘resolved’ issues when it hasn’t and instructing the courts. It’s quite appalling behaviour. I say the FOS isn’t strict enough.

  15. A document published on FSCS website recently shows that FOS have identified only 0.9% of claims it received from CMC’s in the last year were frivolous.
    What many CMC’s have done wrong with PPI is put complaints to FOS during the Judicial Review period. This has overwhelmed FOS and the only people to benefit from this are those that are guilty of the miss-selling.

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