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FSA says wrong time for FOS change

There was disappointing news from the FSA last week after the regulator announced it was to delay any changes to the way the Financial Ombudsman Service is funded.

Most advisers believe the current system is unfair to the sector. Advisers get two ‘free’ cases with the adviser then paying a case fee of £400 for each subsequent complaint no matter if it is upheld or not.

Advisers who are appointed reps of networks do not receive any ‘free’ cases. The only time a case fee is inapplicable is in the rare instance when the FOS finds the complaint frivolous and vexatious.

With the strong encouragement claims management companies have given the public to take their cases to the FOS in recent years, particularly with endowments, advisers have sometimes been forced to pay out many case fees even though they end up not being found culpable by the FOS.

Advisers have the lowest upheld complaint rate in the industry- of around 30 per cent-so Aifa amongst others has been calling on a fairer system where advisers would only be charged after the tenth case.

Aifa’s proposal also calls for a flat annual fee of around £230 levied on all firms and a case fee of £480 charged after the tenth complaint.

But in a feedback statement released last week, the FSA said due to significant volatility in the projections for the number of case fees the FOS will deal with it is the wrong time to implement any radical changes to funding.

The FSA pointed in particular to the lower than expected number of endowment cases, good news in itself, and said it was unable at this time to predict with any certainty how a new model would affect the financial stability of the ombudsman and how it would affect firms.

A cynic might say the FSA managed to propose a ’radical’ 10 per cent increase in adviser fees earlier in the year with much less concern about market effects and the stability of the sector.

The regulator said there was general support to raise the number of free cases and for the case fee to fund a greater proportion of the FOS’s expenses and that it will look again at the scope for moving in that direction when agreeing the 2008-09 Budget.

But this is not good enough for many, including Aifa, who wants what it sees as the current injustice in the system ironed out ASAP.

There was a polarisation in opinion between respondents with Aifa, and a large section of the industry, at one end calling for an increase in ‘free’ case fees whilst at the other end insurance broker trade body BIBA says its members have less complaints against them and worries they will end up subsidising others.

Aifa director general Chris Cummings told Money Marketing recently that this attitude is looking at things through a ‘rear view mirror’ and that BIBA members could be the ones to feel the injustice in the future if changes are not made.

Elsewhere, Parliament returns from Easter recess today with the Pensions Bill returning to the Commons next week and the Tories preparing for a special debate on the Chancellor’s raid on pension funds.

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