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Nic Cicutti: Adviser anger at FOS is misplaced

The number of upheld complaints outside the 15-year liability period demanded is tiny and falling

Do you ever get that kind of uneasy feeling where you do a piece of work for a client but have a niggle at the back of your mind about something you might have missed?

I had that sensation a couple of weeks ago, shortly after writing a brief comment piece in Money Marketing about advisers’ demands for a 15-year longstop on complaints made to the Financial Ombudsman Service.

The comment came in light of the news that the FCA plans to raise the FOS compensation limit by £200,000 to £350,000 by April of next year.

Nic Cicutti: Why FOS is right to raise compensation limits

When I pointed out the FOS’s figures in 2017/18 showed that there were just 235 complaints that fell outside the 15-year timeframe, of which only 68 – or 28 per cent – were upheld, my sense was that I had done a fair job in helping to contextualise those fears.

All the more so, as the totals appeared to be falling: in 2014/15, the number of upheld complaints was 171, almost three times more.

Or so a number of articles in the trade press from May this year appeared to show. In fact, the final figures are far better than this, as I will come on to later.

But that still left unanswered another question: what is the total amount of compensation orders made by the FOS?

And are advice firms who have been ordered to pay out these sums shutting up shop and forcing their clients to go to the Financial Services Compensation Scheme to obtain redress? In response to the first point, the FOS was unable to provide details of each individual claim it had ordered a payout on in 2017/18.

This is because it does not record data on the amount of the award, as it generally asks the business to carry out a calculation to work out the amount of redress owed, rather than identify a specific sum itself.

Meanwhile, the FSCS is unable to provide any data on claims made in 2017/18 in respect of advice firms declared in default where the transaction or advice given was made before 2002.

How long can advisers last without a longstop?

I do have some new data. Before that, though, I want to deal with two arguments raised in response to my comments about the longstop the other week.

The first is a view held by a number of people that there is something excessively harsh about the potential for the FOS to be chasing a retired adviser well into their 90s in response to a claim made outside any 15-year longstop.

Yet if you were in that tiny minority, the FOS would almost certainly be doing the chasing on behalf of former clients who were themselves of a similar age.

That is because two thirds of the claims on which the FOS adjudicated in favour of a client outside the 15-year limit related specifically to pensions advice.

With this in mind, what some advisers appear to be saying is that, while it is terrible for an old adviser to be chased for a payout while in his or her dotage, it is perfectly OK for an older client to suffer permanent and potentially catastrophic financial losses because of poor advice. My second point relates to an argument made in an email received from an IFA whom I have sparred with for many years.

He wrote to tell me that a 15-year longstop is “natural justice” because it reflects the law in relation to tort.

In the case of tort, the limitation period for a complaint to be brought is generally six years, with a provision to extend this to 55 years if the prospective claimant did not have the necessary knowledge of the material facts of the damage.

Editor’s note: Why the longstop debate just will not disappear

Ultimately, however, all statutes of limitations are human creations by definition, designed to respond both to the seriousness of the offence and/or the potential time period by which the damage caused to the individual who may want to seek redress is discovered.

If that discovery takes place later than 15 years, and the scale of damage is – quite literally – life-changing, seeking to apply an artificial time limit used for other torts does not make sense.

Does this still risk the potential for untold numbers of compensation orders being made in respect of advisers outside the 15-year limit demanded by some?

Let me put your minds at rest. In fact, as I hinted earlier, the FOS provided me with new data showing that, in total, out of 136 claims that went the full distance, just 36 were upheld by the Ombudsman in 2017/18.

The others were withdrawn or the advice firm may have offered redress at an earlier stage in the process.

Of those upheld claims, 21 involved one or two cases against individual adviser firms.

One network, which appears in the FOS’s “list of shame” for complaints against individual businesses, contributed the other 15 cases.

Rather than focus on the 15-year longstop, it might be easier to ask what went wrong in the compliance process for those 21 firms and the network.

Nic Cicutti is a freelance journalist and can be contacted at nic@inspiredmoney.co.uk

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Comments

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  1. My mind is not at rest.

    Imagine the outrage if an article contextualised the inappropriate imprisonment of UK citizens with the viewpoint that as only 45 people were incorrectly imprisoned over the last year it’s not a problem.

    Advisers are not angry at the FOS. They are performing the task set out by the Treasury and the regulator both of which conspired to remove the longstop, a legal defence enjoyed by all other businesses.

    The fact that this removal was never discussed, debated or voted on by Parliament, but was sneakily removed when the FSA drew up the Dispute Resolution Rules, merely adds to the real suspicion that it was all an intended outcome designed to appease the consumer lobby by disenfranchising advisers.

    As stated more times than I care to recall, any system which does not employ an independent appeals service and relies on unqualified staff able to award sums up to £350,000 is more akin to a banana republic.

  2. I’m not dogmatic on the longstop. Years ago I handled a complaint for a completely unsophisticated elderly lady who’d been sold a Whole of Life policy by a Pru door-knocker 20 years before. He’d told her it was an endowment. (WoL had a higher sum assured for the same premium so it looked more attractive. The rep’ in question was coming up to retirement and apparently looking to go out with a big commission bang.) She had no need for WoL but every need for an endowment. Pru, to its credit, paid out as if it had been an endowment. The longstop, however, would have time-barred that complaint.

    On the other hand, we did an impeccable interest only mortgage 12 years ago for a perfectly intelligent young man who clearly understood everything. We followed it up with several years of letters and calls all seeking to move him to a repayment basis as we’d discussed at the outset – all ignored. Now so-called ‘Pure Legal’ have written to us demanding a six-figure sum because, supposedly, he didn’t know he’d have to repay the principal. Yeah, right… We’ve told them where to shove it, obviously. Watch this space.

  3. Do I ever get that kind of uneasy feeling where I do a piece of work for a client but have a niggle at the back of my mind about something I might have missed? Yep, every single time. As another firm described it, the provision of advice these days is like walking on egg shells.

    That aside, any client who fails to realise for more than 15 years after the advice on a particular transaction was given, accepted and acted upon really shouldn’t be able to dredge up a complaint about it 20 years or more after the adviser has retired. That’s simply neither fair or reasonable.

    • I refer you to my preceding comment. The lady asked for “Another policy like the ones you’ve done me before, but this one to pay out when my son is 30.” Like many customers of the old industrial life offices, she’d taken out a string of policies for her three children, all with the same rep, over a period of some three decades, some to mature at 18, some at 21 and some at 30. Every single one had been a WP endowment. She and her husband had bought her council house and had no debts. Their joint estate was probably around £120,000 – way below the IHT threshold. What justification could there possibly be for selling such a client a JLLS WoL policy? The only explanation for such a policy is that the large sum assured made it look more attractive. This door-knocker competed on his round with a Pearl guy. That was probably how he out-sold his rival. All the people on the estate trusted both of them. And as a parting thank-you this guy ripped off the people who’d made him moderately wealthy. The woman was a retired garment worker Julian. She wasn’t ‘dredging up’ a complaint; she was utterly devastated when, with her son’s 30th birthday a month away, she was told the policy would only pay out a fraction of what she had been led to expect. She as being quoted the SV whereas she’d expected the sum assured plus bonuses as with all her previous policies. This is why, Julian, I am not dogmatic about a longstop one way or the other. Yes I know there are liars and chancers out there. Currently, there’s one, as I’ve mentioned, who’s trying to unjustifiably enrich himself at our expense. But no way would I want to see honest folk conned and denied access to justice.

      • Bang on Neil. Advisers should focus on fighting cases where chancers are trying to rip them off, not those where genuine claimants were mis-sold but are outside some notional time limit.

    • Absolutely spot on Julian.

  4. Based on Nic’s figures, I wonder just how many complaints will be adjudicated beyond 15 years if this does go through.

    After all, if they are silent for 15 years, what will prompt them in year 16.

  5. Nic, in essence, the arguments you are employing to rationalise your position are akin to those used by a dictator (usually right wing but can be left) to justify the oppression of a minority. However persuasive, they are fundamentally flawed and wrong.

    No law is perfect but if it is not founded on the basic principles enshrined in the Rule of Law then it is just fodder for those that would seek advantage for one group over another. The law must apply equally to all professions, including journalists.

    The case of Shore v Sedgwick Financial Services Ltd [2008] EWCA Civ 863 (a pension transfer case) established that limitation applies to advice in a court just as it does for everyone else. So why do you think that advisers alone are a special case for being dealt with differently on limitation, and only within the FOS regime? It seems on the face of it that it’s just because it’s your particular area of interest.

    I have just checked a legal database for limitation periods (this is paid for and not available to the public). There is a list of 28 limitation periods which apply in various situations. Clearly, the law acknowledges there should be differences and accommodates this. The key point here is that they are all set by Parliament, not applied through a back door interpretation as with the FOS where Parliament had no proper scrutiny, say and approval. If this was properly debated and a law passed as a special case I suspect advisers would be grumpy but accept it.

    I can find no reference to the 55 years you mention, please quote your source on this – Section 14b of the limitation Act 1980 says 15 years is the longstop for negligence.

    Your last comment is trite – you are referring to a compliance process that is over 15 years old. In light of regulatory developments since then is there any value in examining that now? A poor finish to an otherwise thoughtful article.

  6. I think Nic is speaking a lot of sense. I would note that a client with £100,000 to invest is paying, probably, £3,000 for a professional person to recommend a suitable product for them which, like a pension, may last 25 or more years. If the product was not suitable (Neil Liversidge gives an excellent example) then the client, who has paid for the advice, should have some recourse.

    • Yes, but not for ever and a day. Okay, she was sold a WoL when she should have had an endowment BUT, if she was so lazy or stupid as not to bother checking if what she had was a policy with a specific maturity date or to ask a friend or relative to help her do so then, after 15 years, as far as I’m concerned, tough shit.

      • Thank you Julian, the adviser-world’s answer to Rik Mayall’s portrayal of Alan B’Stard, The New Statesman. She wasn’t lazy and she was far from stupid. She worked from age 14 at the beginning of WWII in 1939 well past her state retirement age. She brought 3 kids up well on an income far smaller than yours and all are good citizens who’ve brought their kids up likewise. She did nothing wrong. She trusted somebody who was supposed to be trustworthy but who on his last lap betrayed her. Pru recognised that fact when they paid out without demur. You call her ‘stupid’ Julian but she had skills that you don’t and vice-versa, simple as. I hope for your sake your clients never read your comments above.

        • How difficult would it have been for any reasonably intelligent person to check whether the policy she’d bought had a set maturity date or, over the course of more than 15 years, to have noticed that it didn’t? She must have received periodic statements but obviously made no effort to read any of them. You really do have a tendency to be sanctimonious sometimes.

          • So it’s unreasonable for a woman who’s bought policies of the same type for 30 years to assume the guy she trusts will do as asked and give her another of the same type when she asks for it? Millions bought policies from the old industrial life companies. Most went to the top shelf of the kitchen cupboard the day they were bought and weren’t brought down again until the agent knocked on the door to tell them it was maturing and to persuade them to take out another. It’s not a case of being sanctimonious Julian, it’s just a case of the reasonable expectation that a supposed professional will perform a simple duty honestly.

          • The issue isn’t about casting aside accountability for mis-selling. No one’s calling for that. It’s about customers taking at least some measure of responsibility for checking that what they’ve been sold is what they thought they were being sold and 15 years doesn’t seem to me to be an unreasonable length of time for them to do so.

          • Of course, one of the reasons that people spend a lot of money seeking professional advice is because they don’t understand phrases like “set maturity date”. And I wonder how clear the policy documents are for the non-professional to understand.
            One thing that crops up again and again is “trust” – and if you genuinely trust your adviser, why should you then check what the product is that they have recommended?

    • @George Kaplan: very good point. If anything, on that size of investment made 15+ years ago, the level of commission earned by many advisers might have been at least twice (and sometimes three times) the amount you mention.

      • Anyone so intellectually challenged as to be incapable of understanding what the words “set maturity date” mean should probably be classified as a vulnerable client. I mean, FFS, how much clearer could it be?

        As for trusting an adviser to the point of not bothering to check anything he says or recommends, the FCA clearly has very robust views on that, with which I don’t disagree, other than the extent to which it insists that absolutely everything must be documented beyond all bounds of reasonableness.

        • If you want to know, Julian, why we can’t get a longstop, make yourself a pot of tea, sit back, and read your own comments through the eyes of a consumerist or regulator. Essentially you are saying “If I do wrong and can get away with it for 15 years, I should get away with it forever.” With attitudes like that still around in this industry, I am telling you now, we will not get a longstop this side of the third millennium. Worse still, displaying such attitudes gives the adviser-haters just the excuse they are looking for to tighten the screw on all of us just that bit more, with more time-wasting returns, questionnaires and all the rest. So, thanks Julian. When the GABRIEL report has yet another section added to it, we’ll all know why. Cheers mate!

          • There you go, being sanctimonious again. Just to be absolutely clear, you’re fundamentally and rigidly opposed to ANY sort of time barring and to the idea that clients should be expected to take ANY responsibility whatsoever, even over a period as long as 15 years, for checking that what they’ve been sold is what they thought they’d been sold? Is that your position? If so, past surveys of the adviser community indicate that you’re in an exceedingly small minority.

            Should a vexatious complaint against you, 10 years after you’ve retired, be upheld and you have to pay out a large sum of money, despite sincerely believing that you did nothing wrong, you’ll maybe have cause to rethink.

          • Julian, I refer you to my original comment, that I am NOT dogmatic. Your attempt to put words in my mouth that I have so clearly not uttered simply makes you look silly. I do hope that’s not too sanctimonious?

      • Nic, accountants, solicitors, builders, consultants, and a long list of others also charge fees at this level or much higher with potential long term consequences.

        But they are all covered by the longstop.

        If you honestly believe in the principle you espouse why are you limiting it to financial advisers? Perhaps the issue of equality makes you feel uncomfortable or it’s a bit too difficult to tackle.

        No one is questioning the justice deserved by clients who have had wrong done to them. But advisers are citizens too and it cuts both ways. That’s why we should all be equal under the law.

        Or maybe your mantra is that we are all equal but some are more equal than others?

      • You’ve not answered either of my questions. Or have you (as on past occasions) decided that, as things are getting a bit sticky, you’re much too busy and important to waste time on such inconveniences?

  7. Here is the thing pre FCA/FSA the FOS did not existed. By agreement the could handle cases as if the were the previous arbitration service and had to follow the rules applicable to that arbiter – they never did. Many of these cases were subject to the long stop rules and the FOS simply found other ways to dismiss a case rather than follow the correct rules.

    • More specifically, Statutory Instrument 2326, issued by The Treasury in 2001 is subordinate legislation. Whilst not specifically ratified by Parliament it is none the less ‘law’.

      SI2326 stated that where the FOS investigates advice given prior to the inception of the FOS (but after 29/4/86) the FOS had to take account of what the previous ombudsman body would have done.

      This seems to be a means of establishing that the loss of the longstop only applied to advice given after 2001.

      When I questioned good old Walter Merricks about this he smiled and said the FOS does take it into account . . and then ignores it.

      Parliament debated the establishment of a limitation period and decided that 15 years was the appropriate balance between protecting consumers and providing businesses with long-term certainty. At no point did they say that financial advice or any other industry was exempt from this protection.

  8. The temptation for adding my 2 penneth worth has got the better of me !

    For what its worth the 15 year long stop is a bit of a red herring (IMHO)
    I do think we have to look at ourselves and more importantly the trust our clients have in us… let me explain, I have been in this industry as an adviser for nigh on 27 years, and I would say 99% of them trust in my advice, and sign, hand over cheques,dismiss my fees with a shrug of the shoulder and yeah I understand you have to be paid, then stow the pile of paperwork I leave them in a box in the attic…

    Now; I do have the opportunity to over charge, give poor advice, and sell them polices they don’t need.
    But I don’t !!!! but there are those who will and do ! and that’s why a time bar will not be set and never will.

    Also one has to say (i saw it myself) most policies (pre 15 years) were sold by life companies/banks, and the sales pressure put on the then advisers was huge, often with the threat of being sacked, this practice continued upto very recently and in some cases may even continue therefor clients need to be protected…. yes from themselves but also from bad advice.

    The only valid reason I could argue with a longstop is…in a lot of cases complaints are judged by today’s standards not the standards of 5-10-15-20 years ago fact finds were a page (at most) nobody had heard of risk profiling, nigh on everyone was stuck into a single fund etc etc etc.
    But then I suppose that’s not a longstop issue, its a trust issue (again)…. do we trust FOS to be ethical enough to understand applying today’s standards to those bygone days are not really fair ?
    Just because a client never kept the fag packet with the quote and fund details on is no basis for the absolute guilt of the adviser ?

    • @DH – my sentiments precisely and entirely.

    • For one moment let us ignore the extremely important fact that the industry has been singled out and dumped on by the Government and its agencies.

      I have had ‘happy’ clients who are quickly turned into avaricious scheming clients by the temptation of combo.

      Anybody who trades without using limited liability status runs the risk of suffering a complaint many years after their business has closed down and possibly when their faculties are impaired.

      Those in business with a spouse face the horrendous potential for the surviving spouse to be tasked with investigating a complaint about which he/she know very little – even assuming the files remain available to inspect.

      Network members may find that the network investigates – maybe in a haphazard manner – and finds in favour of the client with a subsequent investigation and combo bill being sent to the departed member.

      Anybody who thinks this is a small issue needs to reflect.

      Finally, the link between ‘good advice’ and not being complained about is very tenuous, particularly if a dodgy CMC gets its little teeth into the matter and promises until riches for a quick signature.

  9. @ Neil Liversidge

    WoL had a higher sum assured for the same premium so it looked more attractive. The rep’ in question was coming up to retirement and apparently looking to go out with a big commission bang

    And what evidence do you have to support this allegation?

    On the other hand, we did an impeccable interest only mortgage 12 years ago for a perfectly intelligent young man who clearly understood everything.

    Funny how you thoink your adoivce is ‘impeccable’ but Pru was wrong…

    It is always someone else that gives inappropriate advice

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