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Neil Liversidge: Tackling the FOS and claims firm culture

Neil Liversidge

As a life-long reader of history I learned at an early age Clausewitz’ first principle of establishing a secure base and applied it when I set up West Riding, taking indemnity commission on protection for the first six months only.

Once I had built up a war chest I switched wholly to non-indemnity. On investments, we operated a fee-based model based on a small initial commission plus trail from day one.

For a while, we did not have much personal money. The business always came first. I never needed the regulator to impress on me the importance of capital adequacy. It is good for staff morale and client confidence if they can see we run a secure and resilient firm.

There is a part of me, however, that thinks I am an idiot. That running a well-capitalised firm is the equivalent of walking down the worst street in a bad city wearing a Rolex and asking to be mugged. That I should really strip our capital adequacy back to the bare minimum and guard my personal wealth instead. Why?

Because too many Financial Ombudsman Service adjudications seem to be arrived at through what is, at best, extreme naiveté or, worse still, a shameless determination to contort logic, however implausibly, so as to find for the complainant.

This on its own would be bad enough but the FOS has become a free-to-use clearing house for the white-collar muggers that call themselves claims management companies.

I have been calling for many years for CMCs to have to pay a contribution towards running the FOS and for claimants to have to pay a small commitment fee. The FOS and the FCA have steadfastly resisted.

I had a brush myself with a CMC some five years ago. The claim was a baseless concoction that fell at the first fence but it still cost me many hours work, stress, worry and a ruined family holiday.  Subsequent attempts to sue proved futile, as it vanished off the radar.

Given the importance the FCA rightly places on capital adequacy I now have at least a partial solution to this problem. Every CMC should be required to lodge a £10,000 bond with the FCA. Out of that, compensation should be paid to firms against whom failed complaints have been made. CMCs failing to place a bond should be de-authorised.

Firms whose bonds fell below the required amount due to payouts should have their authorisation suspended until they topped their bond up again.

Ethical CMCs would have nothing to worry about. They would benefit as their less-than-professional competitors would have to raise their game and pre-filter claims or else go bust. Genuine FOS complainants would also benefit. Their claims would be processed more quickly by an ombudsman no longer bogged down processing try-ons.

Capital adequacy all round is a completely reasonable expectation.  If a CMC cannot put up £10,000, then why should it be allowed to do business? I look forward to hearing the FCA’s inevitable excuses.

Neil Liversidge is managing director of West Riding Personal Financial Solutions



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There are 20 comments at the moment, we would love to hear your opinion too.

  1. Nicholas Pleasure 10th March 2017 at 3:30 pm

    Great idea. The bond should be at least the £20K that IFA’s will shortly need to hold.

  2. That is never going to happen, it is far too sensible.

  3. A bond might be a nice idea, but it doesn’t address the central issue, which is not that there is no recourse against failed claims, but, as you mention, a culture within FOS (with some notable exceptions to be fair) of coming to questionable decisions in favour of complainants. This is sometimes based on a stated principle of fairness, but more often it is down to an apparent determination to favour complainants and accept in them the worst levels of apparent stupidity and lack of understanding. Even complainants who have been shown to have lied and distorted the facts seem to be given the benefit of the doubt. I can well understand firms’ frustrations!

  4. CMC are the major issue when it comes to complaints, it appears most complaints are fictitious to say the least, i think FOS throw about 75% out.
    What we will do , if we ever get one , via a CMC, is write directly to the client, explaining to them , we take all complaints seriously and at the same time and warn them that any claim unproven will be treated as an attempted fraud and they will be reported to the local fraud squad

  5. peter mulholland 10th March 2017 at 5:15 pm

    I lost me case because the fos deemed a first time buyer should be classified as a low risk investor so a regular investment was inappropriate.
    I have not been able to find that first time buyers are by definition low risk investors in any text book – which only leads me to believe they just make it up as they go along.
    Just to load it more in their favour I was told it was none of my business!!! And not entitled to defend as I am ex licensed. But my commission account had to pick up the tab 🙁
    So yes I feel a great sense of injustice and totally agree with the ifa who chooses to strip out capital and ring fence personal assets.

    • Interesting that, what evidence did you offer that they were an experienced investor? Treat all as inexperienced unless proven otherwise. The fact that they were a first time buyer is neither here nor there unless combined with other evidence.

  6. Many years back when Lord Hunt reviewed the FOS I submitted that each complainant should pay a deposit of £50 which would be refunded if successful. This was ignored by the ‘consumers must be appeased’ lobby, a group to which most politicians belong.

    The problems with the FOS are manifold and are worth repeating;
    (1) No independent appeals process
    (2) No face-to-face meeting
    (3) Only the barest linkage to UK law
    (4) No 15 year longstop
    (5) The willingness of adjudicators/ombudsmen to accept hearsay and recollections of old conversation only from the complainant
    (6) Lack of qualifications of adjudicators/ombudsmen
    (7) A subsequent failure to understand retail financial services
    (8) Unwillingness of the courts to grant a Judicial Review
    (9) A consequent breach of the Human Rights Act

    It is a dual problem – ability to freely complain without any recourse (the FOS will never suggest a claimant is a fraudster and will not report such behaviour – although they do report advisers to the FCA) and a subsequent enablement of fraudster CMCs to run amok without any real response from the MOJ.

    FCA advises me that it is minded to grandfather all CMCs across from MOJ regulation. This is wrong and must be stopped. We all know that the majority of these firms are low life weasels who invent complaints, embellish testimony and simply list every known wring when levelling complaints on behalf of placeholders. Any half-decent audit of these creatures would surely result in a mass cull where perhaps only 30% would be found decent and therefore eligible.

    Finally, please recall that I successfully sued one CMC at the County Court for wasting my time. It cost me time and money but I would not hesitate to do so again. Can I suggest that all other advisers faced with attempted fraud act similarly?

  7. Peter mulholland – what’s the case id for the FOS case?

    Great article Neil! I too advocate some form of cost for CMCs (an upfront fee per case, that can be reimbursed upon a successful claim), which will tighten up their approach. Also, I would like to see active promotion of this claims/ambulance chasing culture banned just as “cold calling” regarding pensions are.

  8. And no right of appeal!

  9. peter mulholland 13th March 2017 at 3:46 pm

    In response to Bakes Question:
    What evidence did you offer that the client was an experienced investor?
    Is this another made up rule?
    Do you need to be an experienced investor first before you can have an investment plan?
    So how does a client become an experienced investor?

    • Sorry Peter, i think i misunderstood what you are saying. I read it as if you were annoyed that the client had been classified as an in-experienced investor when you had classed them as an experienced investor. Of course you do not have to be experienced to have in place an investment, but the level of experience that the client has can of course be used in deciding whether such an investment is appropriate when combined with other factors.

  10. peter mulholland 13th March 2017 at 3:51 pm

    If we applied the above rule many plans would not be allowed to proceed. No new pension plan to anyone without experience of investment and therefore many would not be able to auto enrol.

  11. Why would the ‘bond’ need to be lodged with the FCA? Are you expecting claims companies to become regulated now? Surely that’s overkill considering they don’t only claim on a (financially)regulated basis. I’m sure this would also contravene the statutory (civil) rights of consumers but don’t let that get in the way of your ‘idea’.

    Perhaps the best form of defence against spurious claims is providing suitable advice that is well documented and evidenced?

    • …’I’m sure this would also contravene the statutory (civil) rights of consumers…’ How so?

      Consumers can complain to the FOS without the need to revert to a CMC and they can do so at no cost. If CMCs’ are to be regulated by the FCA as has been announced, then they should pay its fair share like the rest of us and adopt the FCA’s rules as they feel fit to impose them. If the CMC then wishes to continue to provide a ‘no win no fee’ service for customers then that is up to them.

      • Because the rights consumers have are not dictated by the method or vehicle of complaint, merely the right to. You could use the same argument for people using lawyers to fight in court rather than representing themselves. Some people may not feel comfortable, able or even aware that they can to do it on their own.

        • Nonsense statement! Lawyers ultimately charge money for their services, even no-win no-fee firms, if they lose, have a cost!

          If someone doesn’t want to go to the trouble of writing out and submitting a ‘free of charge” claim to the FOS then they can and should pay, that is life!

          Further, CMCs’ are not charities and so let’s not pretend that to be the case; so they should be properly regulated (as proper Lawyers and other ‘Professional’ are) and pay their share of the regulator’s cost.

  12. The war against CMC’s has been waged, Alan Lakey and I were part of the boots on the ground in that respect. It has been won to a great degree and FCA regulation of them will be something worth watching.

    But the problem is the dark web version of them, lurking offshore, operating via UK telephone numbers, outside of MoJ and FCA control.

    Perhaps a simpler solution would be that the FOS only handles complaints from the individual who is actually making it. Any other source, such as a CMC, should revert to the courts.

    Just a thought.

  13. Neil Liversidge 23rd March 2017 at 3:35 pm

    @Matthew: CMCs have long been regulated by the MoJ and that function is being transferred to the FCA. I suggest you restrict your comments to matters about which you have at least a basic knowledge.

  14. I agree, Neil.

    I suggest Matthew looks at the Compensation Act 2006 for details. He might like to familiarise himself with the Fraud Act 2006 as well, whilst he is about it.

    The transfer of CMC regulation to the FCA raises an issue in respect of ombudsman schemes.

    At present anything regulated by the FCA comes under the jurisdiction of FOS alone. Will CMCs continue under Legal Ombudsman jurisdiction or also transfer to FOS?

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