In an interview in this week’s Money Marketing, lead investment ombudsman Caroline Mitchell says that the FOS would not have expected advisers to have anticipated the collapse of highly rated institutions in their advice.
This suggests that the Lehman Brothers’ collapse and its impact on structured products will be taken into account in the event of complaints against the adviser. It also says it will not be adjudicating with hindsight.
The ombudsman would not be drawn in detail on the AIG fund, although it suggested that events affecting very large numbers of people may fall under the FSA’s remit rather than the FOS.
Nevertheless, if advisers do face complaints over this fund, we hope the same perspective on hindsight applies.
Much will depend on the explanation of risk by the adviser and the understanding of that risk by the client says the ombudsman.
In practice, this means there will still be problems. Some clients will argue that their adviser should not have sold them a product which had any counterparty risk attached. They will seek to find holes in the advice if they have made a loss. They will try and make what might be called “new ombudsman law”.
We also know that advisers will fear being treated differently by different adjudicators and concerned that a whole lot of expensive arguments will happen all over again.
Adviser leaders should be asking the ombudsman to make sure that any approach is applied consistently.
But it is on the concept of hindsight that concerns us the most. We think the definition of risk may change because of what happened.
Removing hindsight from human decisions is very difficult, no matter how much people may try, particularly when people are complaining with the benefit of hindsight. How else would people complain, of course? But we hope the ombudsman manages to be stand firm, otherwise its decisions will not be fair.