Many years ago, when I still had a few hairs on my head and a far smaller set of love handles than I carry around today, I recall that IFAs’ public enemy number one was the Consumers’ Association, now recast as Which?
Back in the early to mid-1990s, you could not attend a sales seminar, a trade association meeting, a life and pension dinner or even meet a financial adviser for a quick drink down the pub without a diatribe about the failings of the old CA.
Times change and so do IFAs’ favourite bogeys. Today, while Which? is either praised in a lukewarm fashion, albeit through tightly gritted teeth or ignored, financial advisers have found a new target for their ire – the Financial Ombudsman Service.
This was certainly apparent the other week, when a few Michael Winner-esque comments from me about the need to “calm down” over the FOS’s admittedly strange link-up with an unknown consumer complaint website led to yet another outburst from stroppy IFAs.
For the life of me, I just do not understand the hostility to the FOS – with one very important exception, which I will touch on later.
The first and most important thing to realise is that the FOS today is nothing like the old ombudsman services operated by Julian Farrand, first Insurance and then Pensions Ombudsman, or by various regulators such as Imro or the PIA. Even its former chief executive Walter Merricks would not recognise today’s FOS compared with the one that he helped to set up in 1999.
Between April 2009 and the end of March 2010, the FOS handled some 925,000 enquiries, of which 165,000 developed into full-blown complaints.
Of those, the vast majority related to banks, with a mere 2 per cent, or about 3,350, being about IFAs – a proportion that is falling. Of the total number of IFA-related complaints, 39 per cent are upheld.
More detailed figures are not available on the FOS website in terms of how these complaints are distributed within the IFA community.
But separate statistics about the breakdown in numbers per firm suggest that 2,259 businesses each had one complaint referred to the ombudsman during the year, another 584 businesses each had two complaints and 293 businesses each had three complaints.
Of course, one would not want to generalise but I would guess that the above figures overlap with the proportion of complaints made about individual IFAs – except in cases where a move into default of some IFAs is preceded by a rapid rise in the number of complaints they face, leading to them deciding to pull the plug.
Last week, we also saw the publication of the FOS’s third set of six-monthly complaints data relating to individual financial businesses, including banks, insurance companies and investment firms, covering the period between January 1 and June 30 this year.
Out of a total of 84,212 new complaints, almost 90 per cent related to 160 financial businesses, with the number of complaints ranging between from 30 and 12,750.
Again, what this appears to indicate is that IFAs are – relatively – blameless when it comes to complaints against them from their clients. The exceptions are networks such as Sesame, which had 108 complaints brought against them, half of them upheld.
In any normal world, this would be seen as good news by the IFA community, something to be trumpeted loudly by advisers’ trade bodies as a sign of their members’ growing professionalism. Yet all we hear instead is the moans of a handful of IFAs about the fact that, perhaps unwisely given the lack of transparency of the firm involved, the FOS endorsed a promotion that gave away a free Apple iPad to the “best complaint”.
Boys and girls, to be honest with you, that is missing the point entirely. I mentioned earlier that there was one important exception to this and there is. It is the fact that many financial advisers are forced by their networks to bear the cost of complaints made against them.
Firms are permitted three “free” cases per year, with a £500 case fee for dealing with client complaints regardless of the outcome, but a network counts as a single firm. What this means in effect is that a network like Sesame, which, as we have seen, received 108 complaints against it in the first six months of this year, will immediately pass on the cost of dealing with 105 of them to IFAs.
I have said this before, but this is an outrage. My own view is that the FOS ought to be “persuaded” to examine the underlying composition of a “business”, especially when looking at networks, so that the individual IFA receives free cases, not the network itself.
Either that or networks should be “persuaded”, as part of their marketing proposition to members, to say they would pay for the first two free cases for any member firm as long as it does not lead to a complaint being upheld by the FOS.
If either policy were to be introduced, it would not only be much fairer, it would also reduce the potential for anti-FOS whingeing at a stroke. If I were new Aifa director general Stephen Gay and trying to curry favour with the IFA community, I would get my thinking cap on.
Nic Cicutti can be contacted at firstname.lastname@example.org