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