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Long-stop would have barred just nine complaints last year

advice

A long-stop on advice complaints would have affected just nine cases handled by the Financial Ombudsman Service last year, Money Marketing can reveal.

The Government is consulting over a potential limit to advisers’ liabilities where advice was given more than fifteen years ago.

However, a Freedom of Information request by Money Marketing reveals there were only nine cases in the last financial year where the FOS upheld complaints relating to advice from more than 15 years ago.

Since 2010/11 the FOS has upheld 112 such cases, despite receiving more than 1,200 complaints from consumers against advisers.

The Financial Inclusion Centre director Mick McAteer says the figures suggest the long-stop is a “red herring” in the search for improved access to advice.

Threesixty managing director Phil Young adds: “Based on these numbers, it’s not going to reduce the FSCS levy, and it’s not going to reduce the cost of professional indemnity insurance either. It’s not going to make a blind bit of difference.

“The lack of a long-stop shouldn’t be stopping genuine investment in the sector, because there’s no real risk here at all.”

But Apfa director general Chris Hannant argues the Government should bring an end to unlimited liabilities for advisers.

He says: “It’s partly about the principle, but also if you are running a company and getting into this space then you are taking on unknown and unquantifiable liabilities.

“That liability exists whether there are zero or 100 million claims, so it’s not the quantum, it’s the concept. And you can never cap that off as a business.”

Openwork marketing director Philip Martin agrees: “For us the whole issue of a long-stop is not about how it manifests into complaints and costs. It’s more about the fact that it’s seen as an inhibitor by advisers and potential advisers to coming into the profession.”

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. This is also discussed in the Call for Input paper for FAMR – no FOI request was needed. Phil Young is right. The cost of advice is not linked to an arbitrary period of 15 years since a claim could occur at any time before then and protecting yourself against that possibility is where the expenses is. The long stop is an emotional issue and like a lot of emotion engenders irrational argument. I can think of many reasons why one may not enter the industry but the long stop should not be one of them.

  2. One just needs to think of what unlimited liability means-ask a Lloyds member.

  3. No reason or argument then not to observe the law is there !

  4. So Phil, “It’s not going to make a blind bit of difference.”? Would you say that to one of your IFA customers who was caught out by it? It does matter because it affects individuals. Still, it’s nice to know where you stand, Ratner moment…?

    No other trade or profession is treated this way in law for good reason. It’s wrong in principle and affects the way advisers view regulation and the regulator. From thatvperspective alone it probably does more harm than good overall.

  5. We are continually beseeched to treat our customers fairly. Advisers are customers of the FCA and unlike retail markets I cannot switch from them to a cheaper more convenient.

    Given this handcuff scenario it is only fair and reasonable that the FCA give back the protection of the law that other UK businesses enjoy.

    Forget the number nine, how many advisers actually trust this answer to be correct. I recall attending the FOS Conference at the Barbican some years back and asking them how many vexatious and opportunistic complaints they received each year. Their answer? Three.

    The FSCS has confirmed to me that between 2009-2014 they received 779 claims that would have been time-barred under the 15 year rule.

  6. I agree absolutely with Chris Hannant’s line of reasoning that it’s at least as much a matter of principle as quantum. Given that the FCA likes to bandy about the nebulous, open-ended concept of “principles based regulation”, should it not apply that also to the issue of the longstop?

    Then again, in practice, its response is likely to be Only nine upheld complaints? What are you all bleating about? End of discussion.

  7. Can an illuminated IFA just explain to me why this is required? Surely if you trade out of a limited liability structure, there’s no issue.

  8. Surely this strengthens the case for a long-stop rather than weakens it? Firms have to keep records, obtain cover on an annual basis, and factor potential liabilities on an unlimited basis. These are all costs, directly and indirectly.

    The lack of cases outside the long-stop shows that there is little consumer detriment to applying common law to financial services. The detriment is certainly outweighed by the costs borne by firms.

    The figures may also be disingenuous if they do not factor in relevant FSCS cases in addition to those from FOS.

  9. @Bryan Jones, here is the answer to your question about limited company (from an illuminated adviser). I know this to be true as we took professional advice about this very topic when setting up a limited company in 2002. The limited liability structure does not restrict liability for FS purposes regarding regulated financial advice So the limited liability structure holds no water because of the personal responsibility and liability the adviser has for the advice given. If it did then why would every adviser out there not do it? If the adviser is an RI of a firm it is actually the firm who is the authorised party and the firm is ultimately responsible. So if a complaint is upheld, the LLP/Ltd co is responsible for paying the redress as instructed by FoS or FCA and it could be any amount. If the firm cannot pay it, the directors/partners are responsible and if they cannot pay/refuse to pay the firm will be closed and it will fall on FSCS. I trust this answers your question

  10. @GreyArea I’m not vehemently against long stop but it makes little difference to the practical issues advisers face as it won’t get PI costs or FSCS levies down. It’s a principle, fine, but if it’s used as a bargaining chip at the cost of the other more important points it’s wasted. There are other more important issues relating to longevity of claims e.g. should a complainant for retirement advice e.g. an annuity be allowed to be lodged under a power of attorney by someone interested in inheritance? These are going to be major concerns in future and the arbitrary line of 15 years is irrelevant in that context. What’s your name by the way?

  11. Alan Lakey ~ continually beseeched to treat our customers fairly? More like harangued ad nauseam (though this doesn’t apply to the FCA itself, natch).

    Marty Y ~ interesting. I too assumed that directors of a Ltd Co. could just fold a company declared to be in default and walk away without personal liability. It doesn’t work if you’re a member of a network, of course, because upon joining you have to sign a personal indemnification of any liabilities that the network may incur as a result of your activities. But I imagine your post will come as something of a nasty shock to most DA firms who’ve set up shop on a Ltd Co. basis. Another example of how the Law of the Land doesn’t apply in financial services.

  12. Thanks Marty Y. Like Julian says, your response comes to me as a bit of a surprise.

  13. Julian is right. The liability is contracted in by those signing PGs with networks. I’ve never come across an adviser who’s carried liability after correctly folding a LTD company and correctly terminating FCA permissions. If there has that’s the wrong to be righted regardless of an arbitrary 15 year limited.

  14. ‘Limited’…the giveaway is in the name.

  15. @Phil Young
    Fair comment but don’t underestimate the effect it has in setting the regulatory scene and the context in which advisers are treated by the FCA. It also affects the view and perception advisers have of the regulator and fairness of the regulatory system. This impacts behaviour on both sides. The FCA refer to behavioural economics when it comes to clients, the corollary I use is behavioural regulation. Same principle, the latter is just less convenient to address.

    I have explained why I use a pseudonym a number of times previously. The firm I work for may not always agree with, and want to be linked to, the personal views expressed here. Given my status within the firm it would be unfair on them to use my real name. I’d be happy to introduce myself if we met.

  16. Christopher Petrie 19th December 2015 at 8:21 am

    The law of Limited Liability applies in. FS the same as everywhere else.

    A Ltd Co that goes bust leaves no further liabilities. The FSCS may help unhappy ex-clients but the former Directors walk away unscathed, unless they’ve engaged in criminal activity.

    There is NO personal liability for an individual director of a bust Company. That is the basic principle of Limited Liability.

    The only exception would be companies working within a Network whose Directors signed personal guarantees, but I cannot understand why anyone would do that.

  17. Marty Y ~ As a matter of interest, can you cite any specific cases where the principals of a folded Ltd Co have been pursued personally by the FOS in respect of liabilities that, in common law, rest not with the directors but with the company? Were they so minded and had sufficient means to fund it, one imagines they could initiate a legal challenge on the grounds that the FOS is not entitled arbitrarily to override statute ~ unless, of course, it’s written down somewhere that it is, which would be very worrying and yet another example of how the FOS, not to mention the FCA, appear to be exempt from operating within the rule of law that applies to everyone else.

  18. Revealingly, both the FCA and the FOS have told me that advisers should trade under a limited company banner

  19. I trade as a ltd company, but the 15 year longstop IS a matter of principle. phil Young appears to believe principles dont matter.
    Well they do to me. If he thinks it is a red herring, he will of course underwrite personally all FOS complaints outwith 15 years… no…? I thought not.

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