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.
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.
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.
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 firstname.lastname@example.org