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FOS risks ‘dangerous precedent’ over right to cancel ongoing advice charges

The Financial Ombudsman Service has upheld a complaint against an adviser for failing to inform a client of his right to cancel an ongoing fee, despite never having advised the client. 

In June 2012 IFS Financial Management bought the client book of another firm, David Upshall Financial Management, whose principal was retiring. 

David Upshall was not party to the FOS complaint. One client told the firm it did not wish to transfer to IFS, but IFS claims this was never communicated.

IFS sent a letter of introduction to the client on 25 June 2012, who replied on 6 July to say he had given instructions not to be transferred and requesting his records be destroyed.

The client later became aware that IFS had received payment from Skandia in relation to his pension and complained to the firm in September 2013, requesting return of the payments.

The FOS refers to the payments as “trail commission” in its decision, but Skandia says it was an ongoing adviser fee.

In February 2014 the FOS rejected the complaint, saying that it did not believe the client had suffered a loss.

The client then approached Skandia, which agreed to pay him back an adviser fee of £973.27 which had been deducted in August 2013.

In light of this, the FOS upheld the complaint. It said IFS should have replied to the client’s letter of 6 July 2012 informing him he could cancel ongoing payments. It has ordered IFS to refund any ongoing payments, plus pay £100 for inconvenience.

IFS has rejected the decision and requested it go to an ombudsman for a final decision. IFS director Jeremy Miles says the ruling creates a “dangerous precedent”.

A Skandia spokesman says: “Once the customer requested that we cease paying the fee, we did so. Payments to the adviser before that have not been clawed back.”

The FOS declined to comment.

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Comments

There are 20 comments at the moment, we would love to hear your opinion too.

  1. 1. If Skandia has already refunded to the client all ongoing adviser charges deducted since advisory responsibility for his policy was taken on by IFS, then what loss has been suffered?

    2. The FOS appears now to have changed its mind and upheld the complaint on the basis that IFS should have replied to the client’s letter of 6 July 2012, despite the fact that IFS has already stated it never received any communication as to the client’s wishes. Isn’t that basically, without foundation, rejecting IFS’s claim as a lie? It doesn’t happen very often, but occasionally letters do go astray.

    3. So the adviser’s version of events has been dismissed out of hand by the FOS and, if IFS now has to refund all the AC’s it’s received, in addition to the refund from Skandia, won’t that amount to a double refund? Is the FOS unaware of the principle of indemnity? Given that few if any of their adjudicators are actually qualified (the FOS refuses to disclose any data), quite possibly not.

    This certainly could create a dangerous precedent. All the client has to do is claim that he complained to both parties (whether he actually did or not), the FOS will take his word for it over that of the adviser and he’ll be doubly indemnified. I’m sure the CMC’s will be rubbing their hands in gleeful anticipation over the opportunities such a scenario presents for the future.

  2. I’m glad IFS is to challenge this seemingly small case. Natural justice seems to have taken a back seat here and a correct ‘ruling’ needs to be established.

  3. The dangerous precedent has always existed in so far as de facto the FOS is our second regulator. Although this one doesn’t tell you the rules.

    It seems incredible that the FCA and the FOS dont ‘sing from the same hymn book’ and when the FCA asks us about risks seems to ignore the fact that the FOS is undoubtedly one of them.

    I guess in the world in which we live it it too much to expect synergy and joined up thinking and policy.

  4. Surely the time has come for staff at FOS to be educated to level 4 as advisers have to.. Some of the decisions they make are made by those who have no idea about financial service and use a tick box to make judgement

  5. Great Britain. Banana Republic.

  6. And once again FOS makes its own decisions which are in direct contravention of FCA rules. The right to cancel ongoing advice charges was derived from the rules which came into force on 31 December 2012 and related to advice on investments given after that date and to individual cases transferred to new advisers after that date (not relationships before that date, nor where no advice had been given, nor where policies transferred wholesale on business merger). Whatever the Memorandum of Understanding between the FCA and FOS says it cannot be allowed to degenerate into this kind of free-for-all … the FCA should be invited to investigate and comment … they can have no interest in their own rules being re-written and ridden over rough-shod either!!

  7. Julian Stevens 20th June 2014 at 1:44 pm

    Despite having written the rules by which the FOS is supposed to operate, the FCA always tries to distance itself from everything and anything the former does. If that’s not patentoly disingenuous, then I don’t know what is. A bit like the FSA having claimed (lied) for years about being independent from the government. That’s been quietly removed from the FCA’s site. So now we know it ISN’T independent. The only thing of which it is independent is accountability to any outside body (unless George Osborne decides to get involved over something such as Clive Adamson’s recent gaffe). Martin Wheatley certainly can’t tell HIM to GFH.

  8. Has anyone read the actual decision before commenting except for the firm involved?

  9. Unfortunately the FOS and the FCA have a very bad relationship and although they should be working more closely together, they just dont!

    The FOS dont understand the rules, cant comprehend the rules and work on the ‘balance or probabilities’ – sorry what you think as a non qualified adjudicator should not influence the outcome of a complaint. Adjudicators dont have a BASIC understanding of some products never mind the more complex rules that apply to financial services and yet the FCA continue to allow them to make decisions.

    If the FOS are going to use ‘tick box’ flowcharts to reach their decisions, this can be dealt with as long as the tick boxes fit in with FCA rules and regulations. When adjudicators ignore FCA rules and equally claim some laws of the land are outdated and can therefore be ignored, who is really looking after both the IFA’s and the client? The FOS have become too powerful and too out of touch and need to be reigned in.

    The FOS hide behind the fact they are not the regulators and are equally not regulated by the FCA, but they are there to uphold FCA rules and should therefore understand the rules in the first place.

  10. There’s not a lot of balance here. I deal semi-regularly with the FOS and there is a fair mix of good, bad and indifferent. There are clearly some very good ombudsman who understand the subtleties very well. Case management is a big factor – i.e. how you present your case and respond to the Ombudsman plays a bigger part than you might imagine.

    As Adam Samuel has asked, has anyone else seen the decision? There are real inconsistencies amid a dearth of information and I suspect the devil is in the detail.

  11. I have been very impressed by some of the adjudicators at FOS, but we all make mistakes.
    I haven’t read the adjudication, but if this article gives an accurate representation, It’s quite likely that the Ombudsman will over-rule in his final decision. Until then, there’s not much point in jumping up and down too much.

  12. There is really no excuse for people commenting on FOS cases where 1) there is no decision and 2) if there is a decision and commenters have not read it. IFAs planting these stories equally have an obligation to journalists to provide the FOS database reference number so that their accounts of decisions can be properly verified.

  13. Paolo Standerwick 21st June 2014 at 9:27 am

    Client gets two bites of the cherry whilst there was no loss after Skandia refund. So this should have been dismissed out of hand. Dodgy FOS staff.

  14. Whilst I agree with Hmmm, I have recently see an adjudicator rule that a client who was nervous of volatility should have been allowed to attempt to time his investments to match market movements.

    A recipe for disaster, if you ask me.

    I have submitted a Freedom Of Information Request for details of when this policy was decided upon.

    Unfortunately, it is quite clear that Natalie Ceeney’s boast that FOS staff don’t need qualfications simply means that they are not legally required to have them.

  15. While Adam has an undeniable point are we also in error in maintaining that in effect the FOS is a second regulator?

  16. Harry, FOS is effectively a second regulator as their decision is binding. That seems to be all very well if they are applying the same rules as the FCA, but not if there are inconsistencies?

  17. The word “regulator” is much overused or misused. In the sense that FOS has power, given to it by sections 225-234 of FSMA, it clearly has authority and in that sense regulates. All judges regulate by that standard. Indeed, the Court of Appeal in Fox Hayes, Winterflood, Asset Land, even Garrison all regulate (in the last cases by forcing FOS to change its procedures not necessarily for the better). On that basis, a number of industry bodies are also regulator because they have enormous influence at the FCA. British Telecom when it decides when to connect your phone is a regulator in that sense.

    The difference between FOS and a regulator is that FOS’ function given to it by Parliament is to decide complaints in accordance with what it considers to be fair and reasonable. Those decisions do not create precedent or change rules.

    So, if you’re arguing about whether FOS is regulator or not, one has to accept as FOS will that what they do has to influence other people. It accepts this by publishing Ombudsman News and Technical papers on its website. However, if you look at R v. Insurance Ombudsman Bureau ex p Aegon Life, a case I was directly involved in at the IOB, the Court rightly rejected the argument that an Ombudsman scheme is a regulator.

    The power of FOS and its statutory origin (unlike the IOB) is reflected in the availability of judicial review. However, always remember that Parliament elected by the UK population has given FOS the powers it has and as far as I know FOS has only ever exceeded those powers in three cases that were brought against it in the courts (it conceded two of them informally and the third is Garrison).

  18. Dear Adam

    I don’t have the benefit of your legal expertise. However I think many in my position (and I really have no issue with the Ombudsman) would view it as:

    If it walks like a duck, swims like a Duck and quacks like a Duck, then surely it is a Duck.

    I think I follow your dialectic, but as a layman is seems rather arcane.

  19. As Adam Samual has said, before we throw our teddies out of the pram, we need to read the decision. once I have I may well do so…… or I may praise the FOS for a well balanced decision….. until then, my teddy is safe.

  20. If the client signed an agreement with IFS, why is he surprised that they took his money? If the client did not sign a client agreement with IFS, why do they think they are entitled to his money? It seems to me that the FOS revised their decision after Skandia clarified that it was advice fee, rather than commission, at stake. Did IFS give the client any advice between July 2012 and August 2013?

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