View more on these topics

Alan Lakey: My evidence to the Ministry of Justice

Two weeks back, accompanied by Derek Bradley of PanaceaIFA, I met with senior members of the claim management regulation unit of the Ministry of Justice. The meeting had been requested by the MoJ in response to correspondence between us and also sentiments I had expressed regarding rampant opportunism and fraud by claim management companies.

My ire was initially raised by a claim company which inferred misselling by my company. This particular CMC has devised a subtle means of preying on advisers without placing themselves in the frame for potential defamation actions. The ruse works like this. First they obtain a client’s signature which authorises them to make enquiries. The client is led to believe that the insurer will be approached and that a bounteous coffer of compensation money is waiting to be unlocked. The CMC writes to the insurer citing dismal actions and unsound advice whereupon the insurer checks its records and, finding that an IFA produced the policy, forwards the complaint on.

The CMC is secure in the knowledge that insurers do not take these things personally and rarely hit back while advisers, who in the main do, have no legal recourse because the allegations have been directed at the insurer. Neat, huh?

Most advisers process the complaint as directed by their network and/or PI insurer. Consequently, a number of these deceptions are successful.

The MoJ was given proof of fishing expeditions where CMCs trawl for new business without the slightest care or clue of whether any wrong-doing has occurred. The additional workload and cost for advisers who have to deal with such matters transcends irksome and for many becomes a massive financial and psychological burden.

One fishing letter that was left with the MoJ asked the adviser if he had arranged a PPI plan for a particular client. If not, then could he advise on any company which had arranged such a plan? Another CMC sent a truly offensive letter which has shaken the adviser so much that he is planning to exit the industry.

Anything is fair game – PPI, endowments, whole of life plans, critical-illness cover, divorce arrangements and more. The relentless assault of texts, phone calls, leaflets, tabloid and television advertising as well as the CMC stalls which populate many marketplaces has devolved into a pestilence of near biblical proportions.

Notwithstanding the pernicious intent and dubious tactics that these CMCs employ, the potential outcome focuses our attention yet again on the Financial Ombudsman Service. The freedom to complain at no cost has proved a godsend for CMCs. Almost every complaint escalated to the FOS is accepted and processed, thereby providing the potential for a £500 case fee.

Consider a firm which has arranged large numbers of endowments or pensions and has the potential for 20 or 30 complaints being levelled in a year. The firm has compliant files and rejects each complaint, whereupon the CMC automatically forwards them to the FOS.

The FOS investigates and, after the usual 18-month delay, rejects each complaint. Shortly after this, the firm receives the first of 27 demands for a £500 case fee. What an assault on natural justice where being adjudged innocent can cost you £500.

While we all bemoan the CMCs and their avarice, let’s not lose sight of the reality that it is the ability to make use of the FOS which encourages and enables them in the first place.

Alan Lakey is partner at Highclere Financial Services


News and expert analysis straight to your inbox

Sign up


There are 22 comments at the moment, we would love to hear your opinion too.

  1. I cannot believe that IFAs have to pay £500 after being vindicated.

    The Govt or FSA needs to warn complainants that if their complaint is rejected they will be charged. It’s as simple as that.

  2. ^^^ I agree. I also think that the CMC should be billed accordingly per hour for the work that is invloved in the process if the firm are innocent of the claim.

  3. Anonymous

    The IFA industry have been putting up with this for years. The latest twist now has us compensationing failed companies and clients who’s products we never recommended or ever would.

    The industry is like a badly written comedy caper that is destroying viable businesses and careers.

  4. Our mortgage advice arm have received a number of complaints about the miss selling of PPI, and in the vast majority of cases the complainant has not even purchased PPI. Where the CMC are told that the product being complained about has not even been purchased, but the CMC company refer the matter to the FOS, the mortgage MD then claims the £500 cost plus expenses back and writes a complaint to the MOJ. Any CMC that does not pay up is then sued.

  5. Not Surprised 6th July 2012 at 2:36 pm

    The rise of CMC’s is just one example of unintended consequences, of which there are many, brought about by inexperienced short sighted & unnacountable regulators. Hopefully our new regulator will be equipped with less prejudice and more thinking equipment.

  6. Interesting to note that a MoJ Minister’s brother owns two CMC’s and that the said minister’s children had shares in it which they have since sold! Obviously no conflict of interests there anymore then!

  7. Aaron Hester-Lowe 6th July 2012 at 2:39 pm

    How can you expect to charge a consumer for bring a complaint against a firm, which after deliberation is thrown out. There needs to be an appropriate fee for cases that are found against firms – i.e. win = no cost & loss = £1000. This will drive effective behaviour when the complaint is being considered by the firm.

  8. @ Anonymous | 6 Jul 2012 12:36 pm

    I put it to FOS that the CMC’s should be charged the £500 case fee up front if they put a case to FOS. If FOS then uphold the case the adviser liable for the advice would also be liable for not only compensation but also the £500 case fee refund to the CMC.

    I was told by FOS that this would encourage people NOT to complain and given that in the words of FOS “everyone has the right to complain” they would not stand for this method of payment.

    Like Alan says an adviser firm could be landed with any amount of £500 invoices from FOS and without a single one of them being upheld – we are being hung out to dry!

    In the meantime Alan, I congratulate you on your efforts.

  9. its all a bloody joke. I wish i was 65 and not 45 so i could retire from it all.

  10. The firm should only be charged £500 if they lose the case and the CMC should have to pay the £500 if they bring a bogus claim. This would help drive behaviour and also put some liability on the CMC.

    The fact is there’s been far too many people in our industry selling inappropriate policies for too long and we need to create an industry that is based on professionalism and providing appropriate advice. Most of the actual mis-selling around PPI was done through banks and building societies but the IFA and mortgage broking community is not immune from it.

    It is no good for advisers to keep moaning about mis-selling compensation when some in our industry are guilty of concentrating on the commission rather than doing the best by the client. If you’re not carrying out proper assessments and matching the correct policies to those needs and coming up with the correct paperwork then unfortunately you’re going to be sued.

    The only thing is wrong here is the regulator is charging £500 whether you are guilty or not, that is simply unfair and if it is the case then politicians need to take note and change the rules before our industry is totally destroyed.

    On a closing point I’ve always found that happy clients who are reviewed on a regular basis never complain- funny that

  11. I am fortunate( I hope I do not speak too soon)
    that I have not had a claim from a CMC. I have them trying to con 92 year old ladies out of £299 up front fee to claim back MPPI which we have dealt with. If however, in principle, if I receive a claim and we have not sold the product, I will instantly bill the CMC for hours wasted and then take them to the small claims court. Whether I would win or not would be another issue but I would make them spend a fortune fighting the case.

  12. Neil F Liversidge 6th July 2012 at 3:08 pm

    If the complaint was addressed to and made against the insurer, and not against me, personally I would not touch it until the CMC sent one to me direct. I would also notify them that I intended sueing in the small claims court for a return of the case fee, plus the cost of my time spent rebutting it, when – not if – the FOS rejected it. Then we’d see whether they wanted us to proceed and process their phoney complaint. In the event it went ahead I definitely would sue as well. Even if you lose it’s worth it to cause them maximum inconvenience and expense. It’s time to play hardball with these scum.

  13. Well done Alan. The CMC approach you outline sounds very familiar.

    We’ve even had a client approached by a CMC encouraging them to complain over an endowment which matured many years ago with a SURPLUS (previous MM article refers).

    Whilst we would never want to discourage a complaint (Outcome 6 anyone!) the flip side is that this approach by CMCs doesn’t help….

  14. Personally, if I received a complaint via a CMC, I’d write to the customer to inform them that they can raise their complaint direct to FOS and can get free assistance in doing so via the Citizen’s Advice Bureau. It may not stop me being charged the £500,but it would take the bread & butter from the mouths of the CMC vultures.

  15. implied not inferred. they do the implying, you do the inferring

  16. We should all know by now that the Governments throughout Europe are muppets. How else did we get the Euro fiasco & Banking crisis. Anyone who is 45 as mentioned should retrain as a chef. In this life you have to go with the flow !! We played it wrong from the start. We should have behaved as a union. Even now the Chartered elite are allowing the divide and rule process to continue.

  17. @ Neil Walker. If that is the case surely the MOJ would have to answer to a governing body? Who would that be and how would their fee be allocated? What would happen if everyone were to complain against MOJ?

  18. Has anyone really looked into PPI?

    It is a product like any other product, mainly purveyed by banks and other lenders, sometime inappropriately, most of the time advantageous to borrowers, especially concerning Mortgage arrangements for people who did not have any other sick pay arrangements other than SSP or IB

    Any adviser who cannot justify the sale of the product deserves what they get.

    However if the sale is fully supportable and justifiable in line with ICOB rules, then the adviser should firstly reject the claim out of hand and secondly bill the CMC for timewasting

    There is also the opportunity to stick it to the daft clients who believe these con men by send them a bill as well, with a warning that if the claim proves false, they WILL Be summonsed for Defamation in the county court and for attempting to obtain compensation by deception, a criminal offence under the Theft act.

    We need to stop kow towing to these CMCs and fight them tooth and nail.

  19. @ Terry LOVL. I hope you are kidding on… both about the fact you sold a 92 year old a mortgage and also that your sold a 92 year old MPPI!!!! LOL

  20. @ Bobby | 6 Jul 2012 3:53 pm

    Not sure where you’re coming from with MoJ as I was referring to FOS.

    As for the MoJ I complained to them about a CMC who sent in 4 complaints for the same client who never had a PPI which is largely what Alan Lakey is on about and I did receive an acknowledgement from them within a week saying my comments had been noted against the company in question and that they would be monitored.

    Reading between the lines of the MoJ reply I would suggest that enforcement action will be taken against companies who repeatedly bark up the wrong tree lokoing for business (incidentally the CMC quoted 13 different reasons why the PPI plan (that didn’t exist) had been mis-sold – including they say “You did not know your clients needs and circumstances” which is a bit rich coming from them given that they clearly do not know the clients needs and circumstances……

  21. @Anonymous | 6 Jul 2012 3:08 pm – Hopefully you have never received a referred complaint… if you have, I suggest you or your compliance area has read of the DISP rules.

    @Ned Naylor | 6 Jul 2012 3:54 pm – MPPI is gennerally deemed to be an ok sale, even the banks could expect an uphold rate of less than 10% on this. At the other end of the scale, some PPI was single premium with a term of five years to cover a loan of 25 years…. these policies cost more than the customer could ever receive in ASU benefits…. it all depends on the product, the sales process and the circumstances of the customer. I’d expect most IFA sales to be a better quality than the majority of the industry but there are a few bad eggs out there that saw easy money.

    @Alan Lakey – I don’t always agree with views but I always read with interest. There are valid arguments on both sides of the case fee debate. The proposed changes that will see 25 free cases a year will lift most IFAs out of the ombudsman bracket which I think is a sensible solution. Charging consumers will only benefit the very large firms with 1000’s of complaints who use FOS as an extension of their own complaint handling function in the knowledge that most customers will not continue the complaint as far as FOS. I’m not a huge fan of FOS, but I think it’s better having the ombudsman service than not having them. On the subject of CMCs… more power to you.

    @everyone. Please send all examples of CMC fraud to the MoJ. The more evidence there is, the more that can be done to done the thieving little gits. The small claims court approach is great, maybe get MM reporting when you get one of these?

  22. Julian Stevens 7th July 2012 at 12:25 pm

    One of the fishiest things about all this is why the FSA excused itself from regulating CMC’s and shucked off the job onto a body that’s never before been a regulator and which, even now (as far as I’m aware), regulates NO businesses at all other than CMC’s. That’s very odd, don’t you think?

    And to what extent are the MoJ’s regulatory policies influenced by the FSA? As a first time regulator, it must surely, to some extent, interact with the FSA on how to go about its duties?

    It has been reported that the MoJ has already banned a considerable number of CMC’s, though for exactly what reasons we know not. Have any CMC’s been fined or subjected to any sort of regulatory sanctions as a result of having breached the MoJ rule book?

    On the Andrew Marr Show last Sunday, Adair Turner said that he’d like the FSA to have powers of criminal prosecution over the likes of rogue LIBOR traders, in place of the SFO (from which we might infer an ambition for the FSA to subsume the SFO in its entirety ~ God knows what that would do to our levies). Given the clear ambitions of the FSA to regulate everything under the sun and to expand endlessly its powers of enforcement, why didn’t the FSA want responsibility for regulating CMC’s? Why was the task dumped on the MoJ?

    Also, what Alan’s article doesn’t say is whether or not the MoJ were/are in any way receptive or sympathetic to the concerns he’s laid before them. Is the MoJ going to do anything to address those concerns? Has it undertaken to consider them and to get back to him either with an outline of any actions it plans to take or, failing that, on what basis it plans to take no action? If the latter, should we infer that the MoJ considers the current predatory and often fraudulent practices on the part of CMC’s to be acceptable?

    Having taken a look at (plus various updates since this document was first created as long ago as 2007), it seems pretty clear that CMC’s routinely ignore a good deal of it. Just looking at pages 6 and 7 of this document:-

    3. A business must not engage in high pressure selling (!!!)

    4. Cold calling in person is prohibited (!!!) Any other cold calling (by telephone, email, fax or text) shall be in accordance with the Direct Marketing Association’s Direct Marketing Code of Practice.

    10. Before seeking to enter into a contract with a client a business must make reasonable enquiries as to whether the client has alternative mechanisms for pursuing a claim. How often do any of them do that?

    Does the MoJ ever conduct anything remotely resembling complaince visits to check on whether or not its rules of practice are being followed?

    I think I feel another letter to my MP coming on…

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm