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Alan Lakey: FOS remains a flawed system

My last column looked at the ability of claims management companies to commit fraud assisted by utilising the free service provided by the Financial Ombudsman Service.

The FOS rules, as set out by the FSA, allow a far greater breadth of investigation and determination than the court equivalent and it is appropriate to again scrutinise the process as well as the potential outcomes that it enables.

When rejecting a claim against it, a firm must explain that the complainant has a six month period in which to refer the matter to the FOS. Claimants who miss the deadline are debarred from escalating the matter unless there are exceptional circumstances. The Dispute Resolution rules give, as an example, “where the complainant has been or is incapacitated”.

Recently, one advisory firm learned that a claimant has applied to the FOS some eight years after the deadline.

It will be revealing to see whether the FOS accepts the contention that due to family illness the matter had to be shelved for eight years. Whatever the outcome it is likely to levy a £500 case fee for its trouble in investigating.

I have often complained that the FOS acts as a consumer champion instead of an impartial dispute resolution service and its decision in this case will serve to confirm or deny the accusation.

The rules concerning mortgage endowment complaints have been regularly adjusted by the FSA and these serve to disadvantage the adviser in that liability can be never-ending. The rules allow six years from the date of the advice or, if later, three years from the date at which the claimant “became aware (or ought reasonably to have become aware) that he had cause for complaint”.

However the determination of awareness is receipt of a ‘red’ warning letter followed by another ‘red’ or ‘amber’ letter which additionally warns of a time-bar date which must be at least six months later

Consider an instance whereby an endowment is surrendered prior to receipt the first or second warning letter. This enables a complaint to be registered with the FOS at any future date as the FOS will contend that the claimant never received sufficient notification for time bar purposes.

This, of course, is one of the prime reasons why an overall longstop is needed.

Proponents of the current system may point to the three ‘free cases’ currently enjoyed by firms and suggest that I shouldn’t concern myself because this will be increased to twenty-five shortly. I disagree. A flawed system remains flawed no matter how much the thing is tweaked, and this has a particular impact on network members and retired advisers.

It is the network that benefits from any ‘free cases’, not the individual appointed representative. What’s more, in retirement no adviser receives the benefit of a ‘free case’ because this facility is only extended to authorised firms.

Ponder the financial plight of a retired adviser who is chased by the FOS, perhaps some ten or more years after retiring. To pay the cost of the current three ‘free cases’ he has to earn at least £1,875 and, being non-authorised, he is unable to offset it as a business expense.

For those who tell me that a longstop is not needed, or that it is anti-consumer, I say how about arbitrary rules set out by an unaccountable yet industry-funded quango that are anti-adviser and quite contrary to natural justice?

Alan Lakey is partner at Highclere Financial Services


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. There is little justice in our industry! There are the occassional rogues and some products should never be allowed onto the market, but the totally innocent get punished instead of the perpetrators. Our whole society is based on this errant thought process.
    I had a complaint poorly handled by my then Network. FOS saw fit to divide the complaint into two, changed the nature of the complaint and then found in the clients’ favour. I obtained a transcript of a converstaion between the client and the provider proving my case and FOS said that they would have found in my favour had they heard this evidence. However, the judgement had been made and couldn’t be changed! No rights with regard to miscarriage of justice here then.
    I’m afraid the whole FOS, FSCS thing really does need a fundemental review. What started out as something laudable has changed into a self-serving quango following Parkinson’s two laws perfectly!
    All we are asking for is a sense of fair play, justice and common sense. Punish the wrongdoers and not everyone!

  2. Incompetent Regulators Award Team 20th July 2012 at 10:43 am

    I agree with everything Alan says but would like to add a bit more. Not only is the system flawed, but also the people who work there and here is why.

    1 Recruits more often than not have never worked in the real world and no little about dealing with consumers, they make academic judgments without any real experience in the field

    2 Most are not qualified for the job. Being a a graduate from Uni with a law degree does not make them good arbitrators

    3 I am aware very experienced people who have applied for ombudmans jobs who I would cpnsider very capable, but they have been turned down for the vacancies as they have shown some personal discretion in decision making. The FOS only wants staff who act like robots and tick boxes

    4 By ignoring fraud they are complicit with these claims which is a disgrace. Unlike fraudulant claims in other areas of insurance (remember Lord Brockwet?), the FOS are part of the problem and act like claims management companies, hence assisting fraud

    5 May ombusdman staff are from other industries and know little about the complex products which IFAs deal with, hence mistakes are regularly made

    6 They should all be personally accountable financially, we would then see how many mistakes they make. I suspect there would be a rush for the door.

    7 Tlastly, the FOS is a politcal tool to gain votes from the ignorant public. That’s the reason the politicians leave it alone. Corruption what corruption?

  3. David Trenner - Intelligent Pensions 20th July 2012 at 10:50 am

    Agree with you both Alan and Ken!

    When Lord Turner announced the appointment of Sir Nicholas Montagu as chairman of FOS he said “This role needs a customer service champion …”

    Actually the last thing it needs is customer service champions. It needs impartial adjudicators and ombudsmen who come with no preconceived notions about the cases they investigate.

    If Turner and Montagu do not know what the role is, what chance has any adviser got??

  4. johnny B Goode 20th July 2012 at 3:27 pm

    Our endowment automatically went to FOS but one was significant so we employed London solicitors to prepare a defence. A 13 page letter together with bundle of 90 items of evidence was sent. The adjudicator stated as the case took place so long ago her judgment would be “based on the balance of probablities” and therefore found in favour of the complainant. The solicitors were shocked that the so called judgement was on the adjudicators personal opinion and NOT on any of the actual evidence!! Call that fair?

  5. Mrs Patricia Turpin 14th August 2012 at 2:57 am

    My High Street bank made a mistake and acted in a thoroughly reprehensible way to cover it.
    I referred matters to the FOS, presenting a wealth of indisputable, factual information.

    The FOS Adjudicator proved unhelpful and totally biased towards the bank. He ignored the FACTS and dismissed my case, based on his ‘opinion’.

    By endorsing the bank’s untruthfulness, the FOS doubled my distress. It was deeply upsetting.

    The FOS delayed my case for a year, before an Ombudsman found in my favour. But his final decision contained a glaring omission. The FOS were aware of the Ombudsman’s mistake but the Head of Casework failed to rectify it, fobbing me off to the Independent Accessor .

    The Independent Assessor is NOT ‘independent’. She maintains she can do nothing about a FOS / Ombudsman’s mistake and states that there is no appeal process. I have referred this problem to The Financial Services Authority who state that it is clearly a FOS Service mistake.

    I have wasted over 100 hours on this bank / FOS matter. The sheer dishonesty, injustice and lack of accountability of the combined banking and FOS ‘system’ is making me ill. Has anyone any suggestions of where I can go from here please?

  6. I would really like to know just who, if anybody regulates the Financial Ombudsman. There’s no doubt in my mind that they are NOT impartial – my case proves it beyond a shadow of doubt.

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