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Aifa wants no-loss, no-fee shake-up for ombudsman

Aifa is calling for a review of the Financial Ombudsman Service, which it says should operate on a no-loss, no-fee basis and be subject to UK law.

It says the ombudsman is acting as a second-tier regulator and is urging all political parties to review the FOS’s role in the UK regulatory structure.

It is calling for the introduction of a long stop for IFAs and a no-loss, no-fee system so advisers are not charged a case fee where a complaint is not upheld.

It also wants to see complaint management firms included in the ombudsman’s annual levy and the FOS subject to the rule of law and bound by legal precedent.

Director general Chris Cummings (pictured) says: “We are concerned that the ombudsman has become a second-tier regulator to the FSA. The FOS needs to be a smaller, cheaper operation, sharing resources with other parts of the regulatory structure.

“IFAs should be protected from erroneous claims with the introduction of a no-loss, no-fee system. At present, 79 per cent of the FOS’s funding comes through the case fee system, with the balance through the annual levy. It is unfair for firms cleared of any wrongdoing to be paying such a large percentage of FOS fees.

“The lack of a definitive long stop means financial advisers are subject to infinite liability. Despite the very few cases brought against IFAs and the significant amount of consumer trust the profession enjoys, it is completely unacceptable that IFAs should be subject to rules that no other profession is.”

Yellowtail Financial Planning managing director Dennis Hall supports Aifa’s calls but says there should not be a long stop if advisers are still getting trail commission.

He says: “In principle, I agree with the introduction of a long stop but, on some contracts, trail and renewal commission run for longer than 15 years. If advisers are still being paid for a product, then there should be some liability.”


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. I agree with AIFA and I see where Dennis is coming from and have been working to try to achieve something which is a fair balance and tried suggesting it to the FSA and they simply threatened me as a result (so much for a principled regulator). My suggestion was that the longstop should not be based on when the original advice was given, nor as dennis says on whetehr trail is being recieved as it is impossible to stop it, but on when advice as last provided so that the 15 year clock only starts ticking if a client decides to stop using a particular adviser or vice versa. After all, we are not product floggers our service is the advice and if after 5 years the product is not suitable (whetehr we were the original selling agent or not), then we should be telling the client it is no longer suitable and if it never was suitable (arranged by someone else), if we do not inform the client of this, then effectively, we should be assuming responsibility for it’s ongoing suitability and absolving the original adviser of liability from that date onwards.
    This seems only logical to me, but the F-packs refusal to even discuss the issue makes a mockery of the situation and shows they ahve something to hide (i.e. FSA directors may have acted beyond their powers and be personally liable for breaches of Human Righst of advisers who have not been allowed to rely on a longstop).
    My suggestion would protect the consumer better than common law whilst providing balance and peace of mind for advisers who may now be retiring at age 65 whose 15 year longstop would then apply from age 80, which I do not think any sane man (regulator?) could disagree with!

  2. It is good to see AIFA finally arguing for advisers basic rights.

    The argument that Chris Cummings puts forward mirrors the responsethat both I and the IFADU put forward some years back when Lord Hunt played out the charade of reviewing the workings and mechanism of the FOS.

    AIFA is aligned with the Adviser Alliance in calling for fundamental fairness from the Ombudsman and also for a restoration of legal rights stolen from advisers when the FSMA 2000 was drafted.

    The lack of a longstop is discrimination which will be confirmed by reference to the ECHR in due course.

    I would accept the ending of trail and/or renewal commission after 15 years if this restored the longstop. Of course, such a change would also impact on initial fees or commissions.

  3. Great to see that someone recognises that complaint management firms should have more liability. My firm has recently experienced a small number of cases presented by these firms and we have been appalled at the lack of proper investigation conducted by them and also the completely impersonal correspondence – they don’t even bother to adjust their own templates with customers names. The tone of the letters we received were heavily weighted towards threatening FOS referral if we didn’t respond within regulatory timescales. The overtone being “pay up or be referred”. They might do a better job by their clients if there was a potential liability on themselves to meet FOS costs for lost cases.

  4. Alan Hughes, Foot Anstey 22nd October 2009 at 10:26 am

    I do not condone the activities of certain claims management firms but to a large extent they are a symptom, rather than the cause, of a problem.

    The way that the complaints rules are drafted, and the way that the system operates, means that such firms can get away with submitting an almost completely generic and non-specific complaint which will nevertheless, as far as the rules are concerned. trigger the full complaints process and the various onerous obligations that places on the authorised firm.

    I am all for placing more liability/obligations on complaints management firms but would prefer to see this done through the complaints rules being tightened up so that such complaints do not “qualify” to start with.

    If complaints management firms had to particularise the complaint properly, then maybe they would not be so prolific.

  5. The Mystery Shopper for IFAs 22nd October 2009 at 10:44 am

    The FOS is circumventing the law by ignoring SI2326. This clearly states that any complaints which come to them should be considered under the Ombudsman’s rules of the day at the time of sale, e.g. PIAO used the limitation act. Therefore nearly all endowment cases would have been time barred in this example. The FOS have systematically ignored this and say ‘we have considered the previous Ombudsman’s rules’ but then they go on to ignore them and apply FOS Disp rules which allows them to charge FOS case fees and do as they like. And as one legally qualified person said to me, “the limitation act was there to protect the consumer and company alike”. The FOS has taken millions of pounds from compnaies and IFAs using this illegal system. Some reptrospective legal action should be taken against individual staff involved in actively ignoring these rules starting with Walter Merricks who was warned. That would be real justice!

  6. Neil F Liversidge 22nd October 2009 at 10:49 am

    I totally support AIFA’s stance – it’s what I called for in March 2006. My article is still on the Money Management website:

    I wrote another very long piece also asking for claim chasers to be levied. Well done AIFA – we as IFAPAC can work with and support any organisation that seeks a fair deal for IFAs.

  7. Caledonia Consultancy 22nd October 2009 at 10:59 am

    The FOS are blatantly ignoring SI2001/2326 for post 1st December 2001 sales/complaints thereby acting illegally and giving the finger to the Treasuary.

    The long-stop rule applies to these cases as they are under the PIAOB Terms of Reference regime.

    Any lack of long-stop rule under the FSA regime will have no impact until 2016.

  8. Whilst I would like to agree with Alan Hughes, the problem is the inquisitorial way that the FOS works.

    One might reasonably think that a complaint made about asset allocation or some other specific matter would be investigated and, if seen to be without merit, dismissed.

    The reality is that the FOS will always look at the overall suitability so it can frequently be he case that a specific complaint is rejected whilst the adviser is held liable for something that the complainant did not make an issue of.

  9. To Mystery Shopper for IFAs, Caledonia etc

    Whilst I agree with what *ought* to be the law on this, you are wrong to believe that the transitional provisions in SI 2001/2326 say what you think they do. This was recently tested (another Fatchett case) in the Court of Appeal and booted out quite quickly.

    On a lighter note, if FSA/FOS do not want to give you a long-stop, why not simply set one of your own up? This is easy if you’re currently an Ltd and there are a number of methods for achieving this. They obviously work well with larger books as they will of course involve some cost to get these things set up, but could well be worth it – especially if you’re looking to sell up in a couple of years.

  10. To MIB – That was what i was looking to do, but when I contacted them they sent letters with implied threats that they would “visit me”. If you’ve got other ideas MIB, then do share.

  11. Neil F Liversidge 22nd October 2009 at 4:10 pm

    I totally support AIFA’s stance – it’s what I called for in March 2006. My article is still on the Money Management website:

    I wrote another very long piece also asking for claim chasers to be levied. Well done AIFA – we as IFAPAC can work with and support any organisation that seeks a fair deal for IFAs.

  12. The Mystery Shopper for IFAs 22nd October 2009 at 4:16 pm

    Man in Black

    Maybe you’re not up to speed mate. But the FSA are looking at TCF bullsh*t for firms who may closed down after selling up their clients. So using Ltd company route won’t work if they have their way. They want to get you or life as they try to do that now. As far as Fatchett is concerned he is a rogue solicitor and in it for himself. I have had direct personal dealings with his choice of barristers and I wouldn’t even employ him/them to clean my floors.

  13. To Mystery Shopper

    They’ve been looking at this for this for 10 years now…and while they look, stuff happens…Their main focus is phoenixing and (lets give them credit) protecting the Compensation Scheme (not that they always do this!)

    I certainly have no interest in encouraging people to dump liabilities onto the Compensation Scheme. Neither does anyone here. But if you have grounds for believing your book to be clean – but have 20 years of successful trading behind you – there are a number of ways of creating the legal certainty of a clean break without anything then sticking. Certainly if you’re planning to retire from 2012…

    Interesting comment about certain Lawyer BTW.

  14. The Judean People’s Front (JPF) supports the People’s Front of Judea (PFJ) in these futile attempts, any dissenter is hereby branded a ‘splitter’

    What have the Roamn’s done for us?

    Brian: Look, you’ve got it all wrong! You don’t need to follow me, you don’t need to follow anybody! You’ve got to think for yourselves! You’re all individuals!

    The Crowd (in unison): Yes! We’re all individuals!

    Brian: You’re all different!

    The Crowd (in unison): Yes, we are all different!

    Man in Crowd: I’m not.

    Another Man: Shhh!

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