Advisers have welcomed the Financial Ombudsman Service’s attempts to engage with them more as it tries to get a firmer grip on costs and efficiencies.
In its latest business plan and budget, published last month, the FOS said it would cut nearly £32m from proposed spending, as staff costs in particular would be squeezed. Industry levies have also been frozen at £27m.
Pensions and investment complaints are down from their 2012/13 peak of nearly 20,000 (see chart). But the FOS is expecting pensions and investment complaints to increase this year from 14,000 in 2016/17 to 16,000 in 2017/18.
The FOS’s pledge in its latest business plan was for half of non-payment protection insurance complaints to be resolved within 45 days by the end of the 2017/18 financial year. So will talking more with advisers and the FCA help the FOS deliver on its promises, and prepare it to deal with the next wave of claims?
Adapting for the future
When FOS strategy director David Cresswell joined the organisation 18 years ago, headcount stood at 300, with the body processing 25,000 complaints a year.
Now, 4,000 staff deal with around half a million complaints.
Cresswell says the future of the Ombudsman is a more efficient model, cutting paper and the inefficiencies caused when queues of complainants build up. He says a “just in time” supply model is the dream for the adjudicator, with resources flexing in line with need more easily.
He wants ombudsmen “to be on the frontline, not locked away in a
little cupboard”; part of a wider strategy at the Ombudsman to engage more with advisers and the rest of the regulated community.
The Financial Advice Market Review last year aimed to “increase clarity and transparency about the way in which the FOS deals with consumer complaints” by running best practice roundtables; publishing more data, particularly on historic complaints; and improving resources on its website.
But Cresswell says it is hard for the FOS to predict what is coming down the track. He says: “The challenge is we still don’t have an accurate forecasting model to tell us what is going to happen next year, the next three years, or even next week.
“When ombudsmen die we have only one thing on our gravestones: It depends. As soon as you think that’s the thing you are going to deal with, that’s what we will sort out, it’s like Whack-A-Mole; something unexpected pops up somewhere else.”
He says ombudsmen should move away from rigid specialisms to be able to handle whatever complaints come their way. He gives the example of adjudicators who, in the past, would only take cases on niche markets like equine or motor insurance, but who would need to be paid to wait for the complaints to come in these areas. He says: “Now what we have been saying is in the future, ombudsmen need to up their game and realise their power is not about historic product knowledge, it’s unpicking at a higher level what’s actually going on.”
Working with the FCA
The FOS and the FCA drew up a “memorandum of understanding” on how they would work together in December 2015, targeting how they could share intelligence and best practice.
Cresswell acknowledges how important the FCA’s role is in looking at systemic market issues as opposed to the FOS, which will only receive evidence from individual claimants.
He says: “There’s much more emphasis, particularly from the regulator, on looking forward and intervening much earlier. We are only this size because of industry and regulatory failure 20 or 30 years ago.”
For example, payment protection insurance is still set to account for over half of the complaints the FOS will receive in the coming year.
Advisers have long argued for the introduction of a long-stop, but this does not look likely in the near future. The FAMR rejected a long-stop despite high profile campaigns by the likes of Apfa and Zurich.
Cresswell says the legal position with regard to the long-stop is often overlooked: a statute of limitation is in place which means the complainant cannot claim more than three years after they knew, or could reasonably have known, they had grounds for a complaint.
Give and take
Richmond House Group managing director Paul Beasley, an adviser who has campaigned for reform of the FOS and the Financial Services Compensation Scheme, says he still backs the long-stop.
Beasley says while the FOS has been making efforts to engage with advisers, the lack of independent review of decisions remains an issue. Currently, the FOS pays for an independent assessor to rule on complaints about service levels from the ombudsman.
This includes factors such as how swiftly cases were handled, but not about whether the eventual decision was correct or not.
He says: “We have seen a bit of understanding, and more empathy with some of the arguments. The FOS does seem to be listening more and engaging in a more constructive manner.
“The problem is still the overarching one that you have no recourse to law. The laws of natural justice don’t apply to the FOS and that’s a major issue. I don’t know of any other regulator that’s so immune.
“What I would like to see is an independent appeals process bec-ause there’s none at the moment. It means decisions can be made with impunity because they know they’re not going to be challenged. If they were accountable in an appeals process the quality of those decisions in terms of consistency and consistency with the spirit of the FCA rulebook would greatly improve.”
Beasley also says the FOS has “a long way to go” to be more joined up with the FCA’s thinking.
He says: “The FCA rulebook is a guidance document and there’s very little that’s definitive, so it is open to interpretation. The FOS’ interpretation in many instances really goes against the advisers’ interpretation and understanding of the intention behind the rulebook.
“The FOS still has too free a hand to decide what’s reasonable.”
Over 2016, the FOS lost around 600 full-time staff, as it budgeted an additional £8.7m in contractor costs.
A former FOS ombudsman, who worked on a contract basis for the complaints body, has raised concerns to Money Marketing over how long ombudsmen had to determine on each case, and also on staff turnover.
They say: “Not many of my cohort are left. Most have given up like I did although some had a little more patience than me.”
Beasley says using more contracted staff would be “very welcome if more specialists are being bought on board”, but would expect a long-run increase in costs, not a decrease.
There are also concerns over the expertise of adjudicators under this approach, even if it may lead to a small reduction in costs.
Apfa senior policy adviser Caroline Escott says: “Obviously you want to get good value for money for fee payers. But costs moving down or up a little is partly missing the point. We are trying to get more transparency on FOS staff qualifications who are dealing with these very complicated cases. To look at the cost is interesting, you don’t want it to be excessive, but there’s a more fundamental issue.”
She agrees there has been progress on engagement with groups such as Apfa, but advisers remain “frustrated” at the service.
She says: “We are not necessarily where we would like to be on several of the issues but they’ve proved they are attempting to engage with us. We have been engaged with the FCA, and had quite a broad meeting with them and the FOS on suitability reports.
“When a complaint comes to the FOS, smaller firms find it very worrying and upsetting. It’s their livelihood gone to pieces. The FOS is doing a good job – though not as good as I would like – to look at their concerns.
“There may be some misconceptions about the FOS among advisers, but then again we have looked at a lot of cases where, to our minds, it looks like the FOS took the wrong decision, so the frustration goes both ways.”