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A Consumer&#39s View

As the economy slows, new business drops off and profit margins are squeezed by the 1 per cent stakeholder regime, financial services companies would do well to heed a warning from FSA chairman Howard Davies.

Somewhat late in the day, the FSA is getting tough with institutions over their poor administration. “Of course, costs must be cut when business volumes fall but we warn firms now that over-pruning back offices could be a dangerous course of action to take. Firms must resource, manage and train staff properly in these essential functions,” said Davies at the recent London Human Resources Conference,

He pointed out that the FSA has disciplined a wide range of financial institutions, many of them household names, citing poor reconciliations, miscalculations and misapplication of dividends as common administrative failures.

He warned: “The one common feature in these cases seems to be that firms were not giving a high enough priority to these important back-office functions. In some of these cases, significant amounts of compensation had to be paid to customers and we know that poor administration and inaccurate record keeping damage consumer confidence in financial firms and can be a cause of distress to individuals.”

This must be a contender for the understatement of the year.

IFAs know only too well which companies are the worst and none of them is perfect. Indeed, brokers refuse to use some companies, not because they have no competitive products but simply because their administration is so poor that it is not worth the hassle.

Mortgage broker Charcol, for example, admits there are some lenders it excludes from its lists of best buys because their administration is just not up to the job.

You only have to look at recent ombudsmen&#39s reports to realise how bad the situation is. Miscalculations and administrative failures have long been the biggest categories of complaint and it is not so long ago that the Ins- urance Ombudsman had to reprimand insurance companies for failing to reply to his queries when investigating complaints.

Mortgage lenders are among the worst offenders. Only last month, Birmingham Midshires had to write to all its variable-rate borrowers to correct an earlier notification of monthly direct-debit reductions. How can the company get this wrong? Presumably, the new variable rate is punched into the computer, which works out the new monthly payments and generates the letters notifying borrowers of the change and the date from which it will operate.

Customers have a right to expect that calculations made by financial services companies are correct, not least of all because checking whether they are accurate is beyond the ability of most consumers.

We have to take it on trust that the calculation of unit prices in unit trusts and unitised funds are accurate. But the number of fines issued by the FSA in this specific area indicates that mistakes are made far too often.

If the product providers are making mistakes on unit prices, how do we know that unit allocations are correct? The answer is we do not. Some of us are able to check more straightforward calculations such as monthly mortgage payments and far too often it is revealed that these are wrong.

If this were an isolated occurrence, companies such as Mortgagecheck would not be able to make a living out of checking homebuyers&#39 mortgage statements.

The FSA intends to get tough. Davies said: “Our new regime will make senior management responsible for compliance in this area and there are new training and competence requirements for back -office staff. The industry needs to pay much more attention to it [administration] than it has done so far. Unfortunately, there are some signs they may be doing just the reverse.”

You have been warned – and about time too.


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