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