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Alan Lakey: The law is not sacrosanct when it comes to trail


As a child I was cautioned that the law was sacrosanct, that people far more knowledgeable than I would ever be had painstakingly considered, debated and determined what was fair, right and proper. 

Leaving aside that thoroughly discredited fairytale, I was recently reminded of my earlier gullibility when I received word from Foresters concerning the Children’s Mutual closed book it had acquired.

Children’s Mutual placed all its eggs into the child trust fund basket, with the consequence that its future became unviable when, in May 2010, the Chancellor abolished CTFs and introduced children’s Isas. The company was taken over by Foresters in April 2013. 

Like many advisers I gave business to Children’s Mutual and its previous incarnation the Tunbridge Wells Equitable Friendly Society. My clients took out contracts which incorporated renewal commission, enabling the cost of reviews to be met or subsidised. These policies were three-way contracts between client adviser and product provider and subject to both agency law and contract law. Foresters’ missive advised me that “in the interests of its customers” it was ceasing future commission payments and would provide a one-off payment in full and final settlement.

Foresters said the full and final settlement figure would represent its estimation of two years income. I have suggested that if it is so well-intentioned regarding these customers it would be very much in the customers’ interests if Foresters similarly agreed to decline future payments in respect of administration and fund management.  Perhaps, in imitation of its planned design for my business, it could evolve into a charity and offer free fund management. To date there has been no response.

In a comparable vein, TSC member David Ruffley MP recently used the Freedom of Information Act to establish that 15 senior FCA personnel are using their own limited companies to avoid tax on their contractual pay.

We often hear the FCA is no longer the box-ticking authority but a more outcomes-based regulator focusing on the ethicality, the spirit and the intent of the law. 

This is another instance where it appears to be saying do as we say but not as we do. If the counter- argument extends to legality, and that no laws have been broken, then maybe the industry can expect the return of the 15-year longstop defence which continues to operate as part of the Limitation Act and remains in effect for the rest of the UK.

After all, this is a lawful defence that was summarily removed on the basis that it was against the public good.  Reducing the tax levy available to the Exchequer must also be against the public good so to the FCA I say, lex non distinguitur nos non distinguere debemus.

Alan Lakey is the principal at Highclere Financial Services 


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. I agree with Alan ref the Longstop issue and am due to have a meeting with FCA staff on the issue of my continued mention of the existence of a 15 year longstop in my client agreements early in June. (this goes back to my communication with Linda Woodall over 4 years ago and refusal to back down on trying to achieve a balance of rights and responsibilities for BOTH parties, i.e. adviser and client which was fair and reasonable)

    I would be interested to see the 15 names released under the FOI of FCA staff making use of this jolly wheeze.

    As to the buying out of trail commission by providers, i think the idea of doing ti with a lump sum payment of a multiple of ongoing is fine in principle, it is the quantum which may or may not be fair.

    Lincoln bought out the trail on it’s life policies, which I was pleased about (whether the quantum was fair or not I don;t really care) as the cost of trying to account for such small sums (as we’d placed very little protection business with them) was more hassle than it was worth.

  2. Crikey Alan is that right ? re-FOI by request of David Ruffley

    If so that really is pot and kettle, this also brings in the argument that they should fund their own expenses surely ? and claim is as a business expense via their LTD company ? or is it cake and eat it time ?

  3. We used to talk about “avoidance” and “evasion”, one being ok , the other illegal. Now that we have thrown out “the law” and can simply ignore legally binding contracts for the good of all (platform trail to be stolen in 2016) it should not be surprise to those on high who regulate that they also will be required to do what is right rather than just what is legal.

  4. Where can one find further information on the FOI you reference in this article?

  5. @ Alan, found the article thanks, but don’t know how to find the info disclosed under the FOI.

  6. I’ll bet Foresters are not increasing policyholders’ allocations. So will someone explain in detail how this is a good outcome for them?

    Alan, along with other affected IFAs, band together and emply some no win no fee like and launch a class action against Foresters. A lump sum payment may be ok, but it has to affect current annuity rates, which means you may be entitled to up to 20 commission!

  7. Before we all do something stupid, can someone produce a copy of the contract between an IFA affected and the product provider concerned and supply it to Tessa Norman of MM and she can show it to me.

    This has nothing to do with agency law except that the one thing IFAs do not want to become is the agent of the provider.

  8. By the way if you had any real respect for the law, you would stop going on about the 15 year backstop as anything to do with the law. In 2000, 2010 and 2012, Parliament conclusively ruled that it did not want such a backstop to apply to the FOS. On the last two occasions, the issues had been well aired publicly and yet Parliament chose not to extend the Limitation Act to FOS and the Financial Services and Markets Act. The Courts have correctly concluded that the Limitation Act does not apply in this situation. The European Court of Human Rights has correctly concluded that FOS by ignoring the law acts within the UK’s entitlement under the ECHR. Enough or risk having the IFA sector being held in ridicule.

  9. Nick Pilkington 9th July 2014 at 5:00 pm

    I am unaware of any definitive ruling by Parliament relating to removal of Longstop or the European court ruling you quote. Could you point me in the direction to get these rulings please?
    I do know that the FOS is meant to abide by the rulings of previous regulatory bodies i.e FIMBRA which did apply a Long Stop so any cases written prior to 2000 should have a long stop applied (FOS ignores this).

  10. Longstop – there is a note on Panacea – – concerning an on-line petition regarding longstop. The response hasn’t been great.

    If you don’t want to read the article, the petition is available at Please sign it and encourage your staff and as many as possible to do the same.

  11. It’s very simple. Read the Financial Services and Markets Act sections 225 to 234 and the Limitation Act which does not refer to Ombudsman decisions. Then, read the entirety of the 2010 and 2012 Financial Services Acts. We could throw in the Financial Services (Banking Reform) Act if you want. On each occasion, the regime put in place in 2000 was left untouched in this area. That is Parliament reaching a decision. Certainly by 2010, the Government knew all about the fact that the backstop did not apply to FOS and Parliament on three occasions has declined to touch the relevant provisions of either the Limitation Act and the Financial Services and Markets Act, in spite of considerable lobbying in 2010 and 2012.

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