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Nic Cicutti: Why FOS is right to raise compensation limits

In May this year, Money Marketing published a story about the number of complaints made against financial advisers in respect of advice given more than 15 years ago.

Figures from the Financial Ombudsman Service showed that in 2017/18 there were 235 complaints, of which just 68, or 28 per cent, were upheld. In 2014/15, it was 171, almost three times more.

The FOS figures prove something I have long argued: that the number of upheld complaints outside the so-called 15-year longstop liability period demanded by some advisers is both miniscule and falling sharply.

We should not be too surprised. As advisers have become more professional, it is inevitable that the number of complaints dating back to the Wild West misselling era of the 1990s will gradually tail off.

In more than 25 years writing about the industry, I have come across just three complaints outside the 15-year limitation period demanded by some advisers. In each case, the advice was scandalously bad. It is right that people whose finances have been destroyed should be compensated for this, no matter when the advice was given, or what the scale of any award is likely to be.

The FCA’s recent proposal to raise the FOS compensation limit to £350,000 has no bearing on the issue. If that’s what you lost because of bad advice, you should get that back.

Money Marketing’s lead feature this week: Does a FOS compensation limit hike mean its time for a longstop?

Let’s be honest, most advisers faced with a £150,000 ruling against them will go into default anyway. They’ll do the same at £350,000. The issue then is about reforming FSCS funding rules, not imposing a longstop or, as some want, to oppose the compensation limit increase.

The right to complain about bad advice more than 15 years down the line is a crucial backstop for consumers, ensuring they are protected against the worst cases of misselling.

Calling for a longstop on complaints is an empty emotional spasm – with negative reputational consequences for advisers. Is that what they really want?

Nic Cicutti is managing director at Inspired Money


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. I completely agree with most of what you say here Nic but I do think a retiring professional has a right be able to relax into his/her dotage without fear that a vexatious complaint might be received when they are in say, their nineties.

    Even if a complaint is devoid of merit, the emotional stress of trying to defend it must be immense. Decent advisers take any suggestion of negligence or malfeasance deeply personally and I can imagine a situation, such as the above, being deeply traumatising for an elderly lady or gentleman.

    I struggle to understand how the fact that there might not be a significant number of valid complaints arising after 15 years is relevant. Other professions benefit from a long-stop and therefore, so should we; its simply a matter of fairness. It would be interesting to see how many valid complaints are lodged against accountants after 15 years, I imagine it would be even less than for Financial Advisers.

    • My point exactly Graham and why as a then under 50 year old I volunteered for APFAs longstop working party and attended meetings with the FSA to find a working solution (which David Geale seemed to like and said would be put to the FSA board, but was rejected behind closed doors for political reasons as the minutes I obtained via an FOI told us nothing).
      I wanted to do my bit while I could defend myself from stale claims rather than wait until I am 80.On Friday,my mother will be moving to a nursing home and my 87 year old father hopes to follow her soon. If I retire at state retirement age of 67, even under common law and claiming a 15 year longstop I’d be in my 80’s. Do the FCA really think it just to have a system that will try and take away my nursing care without any recourse to the law based on an unappealable system?

  2. I fear you have missed the plot here Nic on the lengthy dated cases. In some ways, it isn’t even a ‘complaint’, it is whether a ‘fishing expedition’ by a Claims’ Management Company over some historic matter deserves consideration and valuable management time if it is outside of the Ombudsman’s jurisdiction.

    Then, on the level of compensation, the costs to PI could rise exponentially because insurers do not know how likely such a large claim may arise and how many. It might be a result of some systemic and totally unexpected issue.

    It is also wrong and very discourteous to blandly say that if an adviser had a £150,000 award (somehow not covered by his PI) that he would go into default anyway. If in such awful instance it happened to us we would do whatever we could or needed to do to pay the claim. However, being able to meet a systemic issue at £350,000 is far less likely and then jeopardises the security of all the other clients of that firm.

    Isn’t it about time that people seeking advice took a little more responsibility for themselves and the risks of the route they pursue? We’re not talking about putting your £1million pension scheme into environmentally friendly storage units in a Costa Rican rainforest here (where the adviser should be subject to a criminal prosecution with unlimited compensation) but a well-intended professional adviser who has had an award made against him by the FOS which may be inequitable but without any opportunity for appeal. Or what about a central scheme to which the client could contribute an ‘insurance’ for the surplus over the present £150,000 ‘excess’ if really desperately necessary – which I don’t think it is.

  3. Walter Derricks, when Chief Ombudsman, described the FOS system as a game where one side is playing uphill. No guesses which side that is.

    His comment resonates because what other system is free for consumers to use and abuse and for CMCs to make opportunistic careers out of?

    What other system denies an independent appeal process?

    What other system enables unqualified staff, accessing standard template responses, to sit in judgement to the tune of £350,000?

  4. Spellchecker didn’t like Merricks, wonder why?

  5. Nic, no one is going to argue against what you are saying in principle.

    BUT, how do you reconcile your position with the way the law applies to every other profession, industry and person? Why, in your view is it justifiable for financial services be subject to a different law than everyone else? In effect it goes against one of the basic principles of the rule of law which is equality at law.

    One law for you and one for everyone else, right? Or far right…

  6. PI should be removed and the FSCS the means of compensation.

    If you paid in the amounts paid by advisers current PI, to the FSCS it would be able to be supported more effectively. As state any large claim would place most businesses into receivership, therefore what is the value of PI.

    More importantly, there could then be a register of advisers, with a clear claims history against that individual, allowing for initially a no claims bonus type of arrangement and also eventually a no cover option. So frequent poor advice will lead to that adviser being removed and unable to advise.

    Re the long stop, if you don’t service your car for 15 years it will fall apart, financial arrangements are no different. If after 15 years you have not noticed the advice was poor or bad, was it? Changes in law, legislation, budgets every twelve months, surely after 15 years any reasonable consumer would know IF hey review their arrangements.

    • Couldn’t agree more Martin !

    • I’m afraid that’s not going to work. Whilst some PI insurers are good at evading the ‘next’ big miss-selling scandal many are not. If you were to go back and look at what PI insurers have paid in total since Lehman brothers on failed investment products (Keydata, Arch Cru, EEA life and all the UCIS failed investments) how many of those IFAs that had cover are still trading I would imagine it’s fairly high number – without PI many of those firms would have ceased trading and would end up at FSCS, and who pays the FSCS bill the IFAs!!

  7. It has always amazed me that PI insurers have been willing to take on these risks when their end recourse is not to law. Instead it is at the whim of inexperienced people under pressure to provide a result, whether fair to both sides or not.

    • Fundamentally, it doesn’t matter to insurers what the system is. They’ll look at the system that’s there, form a view on their risk and price policies accordingly. I think you overlook (1) the level of uncertainty involved in litigation and its consequential costs and (2) the EU-mandated availability of an alternative dispute resolution system which ensures that, even if FOS were to be disestablished tomorrow, there would be an equivalent non-judicial system to replace it.

  8. Surely this is an arguemment for replacing the current system with a product levy? Advisers only advise on products subject to the levy and said products would all be regulated products.
    Product suitability still must be adhered to and only in cases of blatant bad advice would an advisory firm be faced with financial sanctions.Then make the FOS accountable for decision making and the level of upheld complaints would almost certainly drop. Remember treating customers fairly should pervade the whole sector including regulators.
    anything else is hypocrisy!

  9. It’s not the “imposition” of a longstop, it’s the restoration of one.

    That aside, why should financial advisers uniquely be denied any longstop against stale or try-on complaints? What’s so different about the long term consequences of our advice/services provided in the dim and distant past from those of a whole host of other professions? Why should we be singled out to be forced to provide, in effect, a lifetime warranty on everything and anything we’ve ever done throughout our entire careers, conceivably (in the future) as long as 40 or even 50 years ago? That’s both crazy and downright pernicious.

  10. now that we have to annually confirm the ongoing suitability to any client paying for an ongoing service of a product or investment the longstop for clients paying for an ongoings ervice has effectively become a rolling longstop.
    Those clients paying for an ongoing service are now due to teh FCA’s refusal to re-insert the longstop in to the rulebook, they are cross subsidising (contrary to what the FCA tell us mist happen) those who opt for a one off service or to terminate ongoing advice.
    This was as Alan Lakey will probably remember my argument to the then FSA when he and I attended meetings as part of the APFA longstop working party with David Geale and his minions. I woudl challenge Chris Woolard to have the same conversation with us that we had with David Geale and his team rather than continue to spout his C*ap reasons for no re-instating a longstop.

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