One of the things I have learned over the years writing for Money Marketing is that it never pays to say nice things about the Financial Ombudsman Service.
You can guarantee the online comments section of almost any story about FOS decision-making will have someone leaping in with a hostile diatribe, questioning the financial knowledge of the ombudsman staffers.
The fact that, whether they find for or against advisers’ clients, FOS findings in respect of the vast majority of complaints are unexceptional in their conclusions, is neither here nor there for most of the haters.
This strikes me as bizarre. By and large, the findings published in Ombudsman News that I have read are not just correct in their own right but also often demonstrate both excellent detective – and deductive – skills on the part of the assessor.
Last week, for example, I found myself reading up on some of the FOS’ findings in relation to Ucis products.
This is partly to support a friend of mine who found herself investing in a Ucis as part of her Sipp, without fully understanding the risks involved. My reading was also in the context of an interesting article by Money Marketing editor Justin Cash on the current proposals to reform the Financial Services Compensation Scheme’s funding structures.
Justin reported how Pimfa – like Apfa before it – is campaigning for unregulated investments to be excluded from FSCS coverage. My gut instinct tells me there is not a snowball’s chance in hell of the FCA agreeing to that demand.
Even so, Richmond House Group managing director and Pimfa board member Paul Beasley was quoted by Justin as saying: “Pimfa is not letting this drop. Unregulated investments should mean exactly that, with no compensation, or no compensation by the back door if you like. We will continue our lobbying in the strongest possible terms.”
If so, I would direct him to FOS rulings in this area of investments. In its May/June 2015 edition of Ombudsman News, it published an article detailing some of its findings in respect of a number of complaints relating to unregulated investments.
In one complaint upheld by the FOS, an elderly couple were persuaded by financial advisers to invest £40,000 across several commercial property funds. When the wife died a few years later, the husband reviewed his finances: he found his investment had dropped by 30 per cent.
He and his spouse claimed they were told this particular investment scheme would keep their money safe. But the husband then found out that the investment arrangement involved gearing, which magnified the scale of any gains – or losses in this case.
The elderly gentleman contacted the firm, saying he was unhappy at not being told the scheme was a geared Ucis fund. The firm responded by saying they had no record of advice being given and believed that the couple must have made the investment decision themselves on an execution-only basis. At this point the gentleman went to the FOS.
One of the first steps the assessor took was to establish whether the couple had received advice. The FOS asked for the advisers’ fact-find and suitability letter. The advice firm said it no longer had this document but then supplied records of several meetings the adviser had with the couple, as well as their application forms.
On an internal note attached to one of the forms, the now-retired adviser was asked to fill in the boxes relating to commission, which more or less killed off the notion that this had been an execution-only transaction.
Moreover, in the notes of meetings with the couple, they had both been categorised as having a “medium” attitude to risk and had been looking to diversify their assets by investing a small proportion of their savings into property.
But there was no record in any meeting with the couple of gearing being mentioned in relation to their investment. The brochure they were given about the investment only referred to gearing halfway through its 90 pages. The firm was also unable to explain why less risky, non-geared funds had not been suggested to them.
It should be stressed that not all of the FOS findings in relation to Ucis investments have been in favour of complainants.
In another case, in which the complaint was not upheld, the assessor identified that the investor had invested in similar products in the past, that his tolerance of risk was “high”, that the documents sent to him stated the risks of this product clearly and unambiguously. A record of a face-to-face discussion in which those risks were discussed was also provided.
What this points to is a clear fact: while the product itself may be unregulated, the advice is not, and the starting point for assessing a claim for compensation, whether paid by the FSCS or directly by a firm of advisers, should always be to consider whether the advice was suitable given the client’s individual circumstances.
Given its occasionally morally-dubious approach to issues of consumer rights, it is perhaps unsurprising Apfa took the view that unregulated investments should be excluded from FSCS coverage. But for Pimfa to follow suit compounds the insult to its members’ clients.
Nic Cicutti can be contacted at firstname.lastname@example.org