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FCA: Claims of FOS regulatory conflict ‘fundamentally flawed’

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The FCA has denied there is any difference in the way the regulator and the Financial Ombudsman Service interpret its rules.

Speaking on suitability reports at a Personal Finance Society event yesterday, FCA lead associate Chris Hewitt said claims the regulator’s rules and FOS decisions conflict are “fundamentally flawed”.

He says: “From our perspective we don’t see any evidence of a material misalignment between our interpretation and FOS’ interpretation.

“We suspect there might be some advisers out there who think that if they’ve got a good process, and they’ve done a fact find with illustration and provided a suitability report with risk warnings, that when the FOS upholds a complaint against them that because they went through the process, and did what the FCA asked, there must be some misinterpretation there.

“But that line of thinking is fundamentally flawed. Just by going through a tick-box FCA process doesn’t make unsuitable advice suitable.

“If you make a recommendation and it is fundamentally misaligned with the risk profile of the client and the assets, it doesn’t matter if you’ve filed a suitability report, that’s not going to change that advice and make it suitable.”

Hewitt says the regulator has no inherent concerns about the handling of insistent clients, as long as firms are diligent in their approach.

He says: “There’s nothing wrong with processing an insistent client case so long as it is properly handled.

“The concern we’ve got is that we’ve seen a fair few examples where it hasn’t been properly handled.

“We have also seen what we termed a ‘papering exercise’, where the case is processed on an insistent client basis, but the report and the circumstances around it suggested that it wasn’t actually insistent client.”


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. What the hell is an FCA lead associate? Is that lead as in metal or lead as in dog?

  2. But would you bet your PI premiums, the excess, and reputation on this?

  3. Grant Mitchell 7th July 2015 at 3:31 pm

    He also speaks enthusiastically about the King’s new clothes

  4. I agree with the FCA statements made, we do follow a processes, agree the clients risk and get them to sign to insure the correct outcome, regulatory areas are documented and to confirm the clients understanding. Why do we do this? We have never had a complaint upheld, but spend hours of time completing these documents, why do we bother? A verbal agreement means nothing and would not support or prove we had covered the risks and dangers involved. We introduced these requirements for clients to sign these forms of understanding based on past outcomes by the regulator and FOS.

    The problem as we learned was later when the client has memory block, states they did not understand, did not get this document or risk warning, which is why we all adopted this process. The rules and outcomes have changed as we as an industry started to close the means by which many clients claimed dishonestly. Yet the FOS may still uphold in the clients favor, stating the clients most likely did not understand. We as advisers are effectively placed in a catch 22 position. We are seen as guilty and have to prove our advice was explained fully, clearly and the client understood the risk. How do you do this when all the client has to say is “we did not understand”.

    SO, why did the client sign the agreement saying they did understand. I have no problem when advice is clearly incorrect and want the consumer to gain the right outcome if they have been incorrectly advised. However, in any other area of law if you sign any agreement or contract you are not given a get of jail card free option. Rules based on feelings or likely events cannot provide a clear and satisfactory outcome or ANY certainty to those that have to apply them .

    My objection, as with our Legal Long Stop is that our industry does not seem to be given the same rights in law as everyone else. Try telling a police offer you did not understand you should have stopped at a stop sign having caused an accident, see if not understanding gets you off. This is our concern, discussions based on likely events and a feeling can never give certainty of any outcome being correct.

    It is very easy to state you see no conflicts when you are not the one looking down the barrel of a gun everyday you provide any advice.

  5. Sorry but the FCA are being a little selective here.

    I have read in this publication about cases where the FOS quoted an investment product and claimed unsuitable advice because that product did not meet the ATR. The adviser pointed to the overall ATR and other investment products / funds used made the advice correct on balance. This was claim was discounted.

    If that is not a good reason to get all your clients on a platform what is? I can see both sides of the problem here but like as already been said, I would not bet my PI or excess on that. It strikes me the whole compensation process has more holes than a water can and decisions/outcomes are a pure lottery.

  6. @ Martin: “SO, why did the client sign the agreement saying they did understand.” Unfortunately, unfair contract terms legislation makes so-called “read and understood” clauses highly likely to be unfair and therefore void. That’s why your bullet-proofing doesn’t work – it’s not FOS making it up as they go along, as advisers often allege, it’s actually them following general law.

  7. Graham Bentley 7th July 2015 at 6:07 pm

    I have seen decisions where principles of asset allocation (that are upheld by the tenets of the Trustee Investments Act, for instance) have been either misunderstood or more worryingly ignored. We know that assets should not be considered in isolation, but in the context of the portfolio as a whole. However, suitability decisions appear to have been made by highlighting the risk of individual asset classes, eg the inclusion of Emerging Market equities in a portfolio. This is rather like saying since flour tasted in isolation is unpalatable, you shouldn’t use it to make bread. I am not convinced that FOS adjudicators on the whole understand investment principles, or that they are encouraged to learn.

    I am of course happy to be better informed, Mr Hewitt…

  8. It never ceases to amaze me how we are judged by people with little or no financial services qualifications ? and then turn round and say they are “aligned” you are right there, in ignorance, not where you should be !

  9. @Money Marketing, please can you ask FOS to list by staff member their financial services qualifications?

  10. Bill Glebioska 8th July 2015 at 8:25 am

    Perhaps we could have written guidance from FOS agreeing the FCA’s views on ‘insistent clients’

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