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Alan Lakey: Still no sign of progress on the longstop

Frequently I read articles telling me how proud the authors are to be working in the financial services industry. About how we improve people’s lives and add wealth to UK plc, etc.

All very laudable I’m sure but, proud?

How can we really be proud to operate within an industry where the basic protection of the Limitation Act is denied us by politicians who frequently betray their ignorance of the industry and, like my own MP, avow that they will follow the party line regardless of any personal viewpoint?

How can we stand tall when we toil beneath a regulator that evinces perfect hindsight vision but displays such a striking lack of foresight when looking ahead?

Last week Lord Flight proposed Amendment 83a to the Financial Services bill. The amendment sought to put right the reprehensible removal of advisers’ access to a 15 year limitation on complaints. Lest it becomes forgotten, the FSA drafted the dispute resolution rules such that they gave no access to a longstop defence thereby leaving the FOS free to assume non-ending jurisdiction over all financial advice from 29 April 1988 onwards.

Parliament did not debate this departure from statute and nor did the FSA consult on it until years later. In recent years the FSA has also refused to provide sight of the legal opinion which they maintain supports their argument that it was Parliament’s intention. One can only guess at this ‘intention’ as the matter was never raised in debate or at Committee stage.

Lord Flight’s amendment sought to rectify this crime against the industry but, not unexpectedly, it was shot down by the uninformed opinions of a number of Lords.

Lord Phillips of Sudbury, formerly the ‘legal eagle’ on Jimmy Young’s Radio 2 show, offered the novel viewpoint that, “very often a person taking out a pension… is wholly dependent upon theadvice of the financial adviser.”

Lord Newby, Deputy Government Chief Whip, presented the dictum according to the FSA/Treasury/Government but in defending the lack of a longstop he failed to acknowledge the original basis of the Limitation Act.

The Limitation Act 1980 as amended by the Latent Damages Act 1986 provides certainty for both parties. It enables firms to plan ahead without the threat of the Ombudsman hanging over them for eternity and provides a line in the sand for both parties.

When debated by Parliament it was held that the rights of complainants and firms were appropriately balanced by a 15 year longstop. After 15 years memories fade and few can recall with certainty what was said and the use of a longstop removes an ever-increasing likelihood of erroneous adjudications.

The FSA states that it has “been unable to demonstrate that it would bring additional benefits to consumers and firms” and argues that its introduction would be a gain for the industry at the expense of the consumer.

This conveniently forgets that up till 2000 all firms enjoyed this protection until it was summarily removed – an instance where the consumer unduly benefitted at the expense of the industry.

Of course, a matter that is conveniently ignored by the FSA and anti-longstop campaigners is that the longstop is designed to forestall court actions where the onus of proof is on the plaintiff.

The FOS uses an elastic concept termed ‘balance of probabilities’ which provides a double-whammy. Not only can antiquated matters be hauled within their jurisdiction but their inquisitorial remit provides a far likelier win for the complainant than going to court.

Alan Lakey is partner at Highclere Financial Services

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Comments

There are 25 comments at the moment, we would love to hear your opinion too.

  1. In the new fee world this is non-issue.

    If I churned bonds every three years, put people in trusts they didn’t need and wrote business based on commission I would be worried about it.

    Give advice and don’t focus on products and this is a non-issue.

    #oldschoolstuff

  2. Saint Francis of Assisi 11th December 2012 at 9:40 am

    You could try loosing your temper and shouting at those involved. It worked with Santander.

  3. Alan, well said, but for those of us whose voice has little effect on the regulator, it is parliament that has allowed this to happen and it is parliament who have taken away our rights, the FSA is just a functionary of the executive.

    Post RDR those of us who survive might just be able to make enough money to pay the FSCS and FSA fees, but I would add that pre RDR business should be reviewed in light of current regulations as it is essential that clients affairs are kept up to date and that legacy investment products which pay commission but may soon become unprofitable for clients investments are justifiably changed to investment products which can do what it says on the tin.

    Every bond, every pension, every ISA, every Unit Trust, OIC, etc should all be re-examined on the basis of (1) Is this still appropriate post RDR (2) Can the client get a better long term deal under the new regime (3) If there is a better option for the client, how do we present that to the client.

    I do realise this may involve some soul searching on our own behalf, but our business is all about serving clients and meeting their needs and expectations.

    E.G. Current Bond / fund AMC 1.75%

    Post 2012 – new bond /fund AMC 1.25%

    If the client has purchased the bond via the commission option, is it not more beneficial to consider that moving over to the lower charging bond / fund and set remuneration at 0.5% initial adviser charge, which would be no more than regular renewal charge and continue with an ongoing adviser service charge of 0.5% of fund .

    Facilitating this is the real problem, not the actual change.

    NEW Wold, NEW Order

  4. Stop Knocking the guy. At least he is not rolling over and dying at the behest of the FSA. Wait untill you retire and someone comes knocking on your door with a complaint from 20yrs previous. It will not be so easy then.

  5. Are you worried!!! 11th December 2012 at 11:00 am

    Now don’t lose your temper you might turn green lol

  6. @ Richard

    You’re funny !

    You are a professional wind up merchant !

    Clear nonsense !

  7. @ Richard Bishop 9.24am. Good morning Richard. I am interested to hear how you have clients that you advise not “flog” a product to. Even more interested to know what your clients are paying you for if your “advice” does not lead to the recommendation they effect a product of some type. Like cash ISA, OEIC. I love it when some of the IFA’s on this site pontificate about how its advice that is paid for not a product. What a load of cr@p. What good is the “holistic advice” to anyone other than the IFA if there is no actual product ever in sight?????? I guarantee you that clients will not keep paying for advice if there is nothing at the end of it. For the huge majority of clients if they hadn’t met and IFA they wouldn’t have family protection in place or IPP or PPP or ISA, Oeic’s etc etc. If its done right all clients are better of as a result of meeting their IFA and being SOLD products. If we are doing our jobs properly the advice SHOULD lead to a product and it is the benefits of the products that enhance the client’s financial well being. Both are equally important – We advise what products meet the client’s needs and the client buys the product. Think about this. If we are putting up shelves in our house none of us really need a 5mm drill bit, do we? Of course we don’t. What we NEED is a 5mm hole to screw the bracket into. So the advice is to create the hole but the product to do it is the drill bit. Both are equally important and you can’t have one without the other. Like it or not ALL IFA’s are sales people, end of. Please get off one’s high horses about “advice”. We are sales professionals and should be proud of it.

  8. Not much changes in the world of financial services I see that some people are considering using the new RDR regulations to churn existing business.

  9. @Alan Lakey

    By just surviving in this industry, making a profit and being valued by your clients is surely enough reason to be proud.

    If things were made as easy as many would wish, then the sense of achievement is diluted. As the saying goes “If it was easy anyone could do it”

  10. @Marty | 11 Dec 2012 11:07 am

    Finally, an IFA that doesn’t think ‘selling’, or being a ‘sales’ person, professional, is dirty and second rate.

    Love the shelf analogy, will use that myself from now on to bang exactly the same drum!

    Having read some very negative comments recently on various MM articles, from the IFA ‘community’, this one is most refreshing.

    Thank You, you have made my day better!

  11. @ Marty

    I couldn’t disagree more. Sure when appropriate a product results, but I have lost count the number of times a client has gladly paid for advice when no product is purchased. In fact it is often advice NOT to buy a product. The client is very happy to pay, because they are either not wasting, or saving money as a result. What I would agree with is that all advice, whether with a product or not has to be cost effective.

    I don’t have space or time to list all the examples, but here are a couple of the most common:

    Equity release. I have advised many to avoid this like the plague. When you really crunch the numbers it demonstrates what a colossal rip off this is. Both the lifetime mortgage and the Shared Equity scheme. OK I will concede that there will be the rare occasion when there is really no option, but I have not come across it in the last 17 years. Perhaps I’m fortunate in having clients who can consider other options.

    Much of the hoop-la concerned with IHT planning is more industry driven than real needs. Again that doesn’t mean to say that it is never worthwhile, but a lot of the time people just get wound up by the press and advisers and when they take a cold hard look they can see that a lot of it is hype.

    If you have never experienced, then you have no conception of what a no product advice can do for client relationships. They then begin to realise that you are not out to flog them anything at all. As I say to my clients – you pay for the advice whether or not a product is purchased.

  12. Trade as a ltd company, retire, shut up shop, file final accounts, close the company. If somebody comes knocking in 15 years the Company post box will be closed and everything will return to sender.

  13. Unelected, Unaccountable quango rules Britain What is there to be proud of?
    Terrosists have more rights than IFAs’
    Vote UKIP

  14. My point is if you write solid business focused on advice not flogging products long-stop is a non issue.

    I agree some advisers are still very sales/product focused and yes, if I was – I would want a long stop.

    Horses for courses. I would point out we’re supposed to be fee based advisers – Not product pushers.

    Each to his/her own. Like I say this #oldschool approach to our sector.

  15. Harry is spot on 100% right.

    With that approach and mindset – Longstop is a non-issue.

    New world starts 31/12/2012 0)

  16. @DerekGair – Assuming you’re an adviser – When in January are you going bust?

  17. Ha ha ha

    Told you – you are funny !!

    Like I said Professional wind up merchant !!

    Agree with you funnily enough about Stephen Womack !

    Probably see you down the dole office old son !

  18. @ Richard Bishop. The longstop applies to the date the advice was given and not any product.
    If for example you were a structural surveryor and confirmed the stability of a building at that date, if it turned out you had made a mistake it would be 15 years from making that mistake.
    This in the new post RDR world, if consumers are split in to those who want an angoing service and those who don’t, providing an ongoing service would mean advice as to continued suitability (rolling longstop) and if someone chooses NOT to have an ongoing service or take furtehr advice. logic and common law dictates a longstop should apply at the 15 year point.
    It really is very simple, it is just that the F-pack chooses NOT to apply any common sense and to abuse small IFAs, particularly sole traders by ignoring a common law right afforded to ALL other Uk professionals.
    The FSA and govermment have no right to infinity. Theoretically they can go past death of the adviser, apply a decision which the courts woudl otherwise not support.

  19. @DG – Yep, interesting year to come (or 3 months). Santander is forecasting 17,000 advisers are going to be with us. 0)

  20. Surely the issue isn’t about whether it might affect you as an individual – that is plain selfishness – but whether it is right and proper.

    Whether it is acceptable for us to work in an environment where basic human rights have been removed on the flimsiest of excuses in a manner reminiscent of some banana republic.

    @Richard Bishop. You should know that it is the advice that is regulated and not the product. You can be hauled before the FOS at any time over ancient advice whether or not any product was involved.

    Unless you have a pair of FSA binoculars you are not exempt.

  21. @ Richard Bishop
    “my point is if you write solid business focused on advice not flogging products long-stop is a non issue”
    What are you on about Richard? do you think advice has a long stop?
    If the regulator decides 20 years from now that the advice you give today is unsuitable you will have no longstop, whether or not you sold a product.
    Wake up and smell the coffee.
    Alan is correct, our basic human rights have been removed in a manner reminiscent of Stalinist Russia or Nazi Germany
    Using the same logic Mp’s & regulators should be held accountable to infinity and beyond..

  22. @Alan Lakey

    Ah the Don Quixote syndrome. Of course advisers are worried only about their own position. Perfectly natural and understandable. Trying to put the world to rights is only the province of a few – in which you presumably include yourself.

    As to your quote “reminiscent of some banana republic.” Haven’t you realised by now – we ARE a Banana Monarchy (agreed – not a Republic).
    We have the highest personal debts in the world – over 100% of average income. Each DAY the UK Govt. borrows £329 million – that’s £120 billion p.a. We are on target for a National Debt of well over a £Trillion. Our science and maths education has fallen behind that of even Hungary. Our manufacturing has declined by over 40% between 1997 and 2007. And this is only a small selection of our lamentable failings. And what is the main topic exercising the minds of our leaders? Gay marriage! Tell me we are not a Banana State.

    It is therefore not really surprising that our politicians, regulators and associated bureaucrats reflect this?

  23. @Anon 1.36

    YOu miss the point – If you take monthly adviser charging for advice (Trial) You’re giving advice every month. The longstop don’t come into it.

    Its not the same a transferring a pension in 2000 and never seeing the client again. Then they have until 2015 to complain.

    If you transfer in 2000 and take trail say for 25 years – The longstop is pointless – You’re giving advice constantly.

    Make sense??

  24. “Its not the same a transferring a pension in 2000 and never seeing the client again. Then they have until 2015 to complain”
    No they have until the end of never.
    After the 25 years is up even if you gave advice 300 times in that 25 years they still have until the end of never if they then decide your advice was faulty, negligent, they did not understand etc etc etc
    Make sense?
    It does to the regulator but not to any other right thinking person

  25. Send the FSA one of your famous emails and see if that works!!

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