It is good to see momentum being maintained on the issue of the longstop with the recent publication of the Aifa/Zurich report on the issue. For a long time, the FSA refused to even consider this issue – it now appears that the FSA (or its successor) may be prepared to consider the issue properly in the near future but it will require a concerted effort on the part of the industry to turn this into real and meaningful change.
The Aifa paper sets out many of the reasons why a longstop should be introduced. These primarily focus on the negative effect that the lack of a longstop has on the industry at present. It inhibits investment and growth and the development of a mature and sensible market for advice, which would benefit both firms and consumers. I wholeheartedly endorse this view, having seen both practising and long retired IFAs suffer at the hands of claims chasers making speculative endowment complaints.
There is also the fundamental issue of fairness which simply cannot be ignored. Every other profession benefits from a longstop and I have never bought into the justification provided for IFAs not having the same protection. In fact, I cannot ever really recall a decent argument being made for the lack of a longstop – the FSA usually tries to ask the industry to justify why the current position should be changed. In my view that is the wrong question – why shouldn’t they benefit from a longstop like everybody else?
Of the options set out in the Aifa paper, I would come down strongly in favour of the straightforward 15-year cap. It has the benefit of simplicity and also of being backed up by a substantial amount of case law. Whilst the Financial Ombudsman Service is not bound by the law, it would inevitably make it more difficult for FOS to look for ways around any longstop if in doing so it was ignoring what has gone before in the courts. There would still be arguments that a subsequent review of advice already given resets the clock with the 15 years starting to run again. That is an inevitable function of the nature of ongoing financial advice, but it would give firms a fair and level playing field whilst not significantly disadvantaging consumers.
I am not so keen on the differing limits option – it just looks a little too complex and there would almost certainly be a bunfight on which investments fitted into which category. It could also result in a disincentive to give advice on investments in the 15- and 20-year categories and focus only on advising on investments with a 10-year time limit – a whole new set of problems.
With regard to customer agreed liability, I just cannot see the FSA buying into a solution where customers are asked to waive a right to complain at a certain point. To be honest, I am not sure that I am comfortable with that proposal myself. It could also exacerbate the “complaints culture” – if a client is being asked to confirm at a certain point that they were happy with the advice given, unscrupulous claims chasers could market this as a last chance to complain.
Notwithstanding the above, I applaud the effort to broaden the debate on this fundamental issue for the industry and Aifa should be applauded for this work. We must all keep up the pressure until real change is effected.
Alan Hughes is partner and head of financial services at Foot Anstey