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