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Fair dues

The banks are worried about their future. Apparently, they fear they may soon be so strapped for cash, they will all go out of business.

Charity muggers will soon be accosting you on the high street and asking you to set up a direct debit for the most needy of causes, the six-figure salaries of bank executives.

Charity boxes will be stationed on bank counters and ATMs will have a button installed so that, with a single push, your hard earned cash can be handed over to the banks (with a small handling charge).

What has caused the crisis? Could it be the latest product failure? That customers have finally realised the level of fees they pay for no service? Perhaps even that the high-street product pushers have seen the light and are abandoning no-value PPI products? No. The trouble has come from you and your sense of fair play.

Reading recent newspaper coverage, it is clear the banks have decided to oppose any review of the Financial Services Compensation Scheme. They have gone so far as to write to FSA chairman Sir Callum McCarthy and demand no change to the current scheme because it would mean them paying more and IFAs paying less. Paying what is fair.

The letter to Sir Callum sets out the banks’ position. The FSCS is in a mess because IFAs get lots of complaints and do not treat their customers fairly. Due to this high level of complaints, IFAs go out of business and so the FSCS has to pay out claims. If only those poor customers had gone to big banks, all would have been well.

In the past, I have called this argument the “tyranny of the average”. It goes something like this. On an average day, an average person will walk down an average high street into an average bank, be sold an average product and, when it goes averagely wrong, will receive an average payout. Because these things are average, it will be ignored, just as everything else that is average always is.

The problem with averages is that they obscure the real picture. Let us dig a little deeper. Do IFAs get so many complaints? Well, the ombudsman publishes figures on who gets complaints and the outcome of those complaints. Who heads the league table of complaints? IFAs? No, banks. Looking at the most frequent users of the ombudsman service, we see a list populated by those guardians of the average.

If IFAs get fewer complaints than banks (and also than insurance companies), how many do we get? Only 14 per cent of complaints. How many go completely against the firm? Less than 30 per cent. Around 70 per cent of complaints about IFAs shows a positive outcome. The figure for banks is, shall we say, somewhat different.

The ombudsman has been deliberating for some time about publishing a list of the firms which are most complained about. Do it today. A listing on the website would be fine. In that way, the press may be less gullible when those with vested interests try to push a story that is as dubious as the products they peddle.

The fact that the FSCS has reached an unsustainable level is nothing to do with IFA complaints and everything to do with the way it is currently established, where IFAs carry open-ended liability. Those involved in manufacturing products that turn sour must carry some responsibility.

The FSCS must be founded on mutual financial interest because it is a consumer’s final safety net. Its existence benefits every firm in financial services.

Sir Callum is a canny chap who will not be easily won over by arguments based on self-interest.

Chris Cummings is director general of Aifa.

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