View more on these topics

A perspective on hindsight

The Financial Ombudsman Service is saying some things about the current financial crisis which should be of comfort to advisers.

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.

Recommended

FTSE 100 slumps toward 4,000

The FTSE 100 has shed over 7 per cent of its value today as investors remained nervous that government action would not prevent a prolonged economic downturn.

Yield to reason

In case it passed you by over the summer, the FSA has used one of its snappily titled quarterly consultations to try and make a case for retaining the reduction in yield figure to show consumers how much an investment costs.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment