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No go for the long stop

There were two intriguing aspects to last week’s Question Time discussion, in which BNP leader Nick Griffin was given a platform to explain his views.

The first was just how cowardly Griffin is and unwilling to admit the truth about his racist views. It was astonishing to watch the bare-faced cheek of someone who, when confronted with a quote of something he had said, repeatedly denied ever uttering those words or that he had never really meant them.

The second and equally fascinating aspect of Griffin’s TV appearance was the way that mainstream politicians twisted and turned when put on the spot over immigration. Justice Secretary Jack Straw was reduced to bleating how, despite appearances to the contrary, he was far tougher on the issue than most people presumed. As Straw squirmed, Griffin smirked.

Trying to outflank your opponents by attempting to steal their thunder is a tactic as old as the hills, of course. Margaret Thatcher did it in the late 1970s, when she told us she understood the fears of those who felt they were being “swamped by people of a different culture” – dog-whistle politics, aimed at potential National Front voters of the time.

Moving on to another subject, Aifa director general Chris Cummings recently called for a review of the Financial Ombudsman Service, speaking of his “concern” that its pronouncements are creating a “second tier to the regulatory structure”.

Chris says he wants the FOS to become “a smaller, cheaper operation, sharing resources with other parts of the regulatory structure.”

Among the changes demanded by Aifa to the way the FOS operates are the introduction of a long stop for IFAs, “a no-loss, no-fee” system so that IFAs are not charged if they are cleared if any wrongdoing by the FSA, claim management firms to be included in the annual levy and “for the FOS to be subject to the rule of law and bound by legal precedent”.

Now, the reality is that these demands have been debated at length over the years and are highly unlikely to be successful.

The long stop is largely irrelevant to all but an infinitesimal minority of advisers. In the years to come, it will become even more so, as the volume of claims specifically linked to with-profits endowment sales subsides and disappears.

Similarly, the number of advisers who are stung by the “three-free” case limit per regulated firm is very small indeed. Should this limit be raised, perhaps to four? Arguably yes, but how many IFA firms would this really benefit: – a couple of dozen at most.

In any case, that’s not what Chris or Aifa want – he is calling for something far more drastic, whereby IFAs pay nothing at all if they win.

It is worth noting that he appears to demand such a system only for IFAs. If it were applied across the industry it would inevitably lead to massive charges for firm the FOS finds against. Almost certainly, any small IFA business would collapse the minute it loses a case.

The long stop is largely irrelevant to all but an infinitesimal minority of advisers and will become even more so as the volume of claimes linked to with-profits endowments subsides and disappears

Then there is the issue of “law” and “legal precedent”. Chris must know that the near-total majority of FOS findings are broadly in line with existing law and legal precedent. Above all, the primary aim of the FOS is to try to provide some form of natural justice to the way complaints are handled. It generally achieves this and if he does not accept this fact I challenge him to give me examples of where I am wrong.

Inevitably, mistakes will be made – incidentally, having a negative impact not just on IFAs but also on those who complain against them. There are a number of cases I have seen over the years where a complaint has been turned down that should not have been, in my opinion.

Either way, to pretend that FOS judgements do not follow long-established precedent on the whole is simply wrong.

Nothing in what I have said above should be taken to mean that there are no grounds for improvement in the way the FOS operates. But if the financial ombudsman so patently does not need the kind of changes that Aifa is demanding, the question must be asked, why are these issues being raised now?

To understand that, it is worth looking back to a document first prepared by Evan Owen in February 2007 on behalf of the IFA Defence Union, which reached almost identical conclusions on most of the FOS-related points raised by Aifa several years later.

Until recently, Aifa has not to my knowledge made reform of the FOS a central plank of its vision for a post-RDR world. It is true that it has repeatedly called for a 15-year long stop in the past few years but the carbon-copy resemblance between Chris’s statements last week and Evan Owen’s almost three years ago takes this a significant stage further.

So, to ask the question again, why now? In his recent Money Marketing column, Alan Lakey spoke of the “senior industry figures” who have urged him to set up the Adviser Alliance. Is there a connection between the AA’s launch and Aifa’s new-found discovery of the need for a root-and-branch review of the FOS? You tell me.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. It could be because the ministry of justice is currently consulting in DECREASING timebars and longstops for everyone else (other than advisers of course) to 3 years and 10 years respectively from the current 5 and 15 years.
    Here’s a story for you. Once there was a solicitor, an accountant, an architect, a structural engineer, a building surveyor, a building contractor, a health and safety expert an estate agent, a journalist and a financial adviser (note I don’t say IFA as it affects all advisers). All of them were involved in the building designing, sellingm marketing, story writing (talking up with positive spin) a building development and it’s subsequent sale. Everyone one of them made a mistake which was not discovered until after the end of the long stop. All the former said, I can’t remember anything, it’s so long ago, I claim my righst to a longstop. The adviser was unable to make the claim )he was dead), so his wife, now in a nursing home and age 85 was still trying to sort out probate (has husband having died as the building purely designed by the architect had collapsed on him) and started to get letters from the son of the solicitor who had been involed in the original project who was now a solicitor in his own right. Realising he would get nowehere by pursuing in behalf of his client (the son of the accountant who was involved in the project who’d bought one of the buildings) through the corts as the courts DO allow the longstop, he told his client to complain to the FOS who would investigate anyway and the estate of the adviser would have to review and defend their advice from over 15 years ago )dead or alive). The wife felt so threatened she just paid up and dying of shock she was burried by the funeral director who was the son of the journalist who’d talked up the project in the first place.
    So Mr Cicutti, have you waived your own right to a longstop yet? as you say and as my story describes, the chances of ever having to defend yourself means you the only reason I can think of why you would NOT waive your right based on your explanation is that you are a hypocrite.
    Please do prove me wrong and I’ll cease to be anon and we could become best mates……

  2. If the 15 yr longstop is as irrelevant as Mr Cicutti would have us believe then why is it that, of all the trades, professions, occupations and other roles in society, only those giving financial advice are excluded from this statutory limitation.

    Where is the justification for restricting this right if the granting of it would be irrelevant.

    You see, Nic, what we object to is the discrimination, not necessarily its effect or relevance. To say “The long stop is largely irrelevant to all but an infinitesimal minority of advisers” is not good enough. An injustice perpetrated against a single person is an injustice against us all.

    As a journalist you have a moral duty to expose and attack injustice in any form. If you do not attack this injustice then you clearly believe that the refusal of the right to the longstop is just. So let us here WHY you believe it to be just.

  3. Caledonia Consultancy 30th October 2009 at 11:23 am

    The long-stop debate relates to sales made after 1`st December 2001 under the FSA rules and have no real impact until 2016.

    It is a different matter for sales made prior to this date under a former ombudsman scheme, where the Limitation Act apply.

    The real problem is that the FOS ignores a direct instruction from the Treasuary to apply SI2001/2326 when asked to act as a former ombudsman.

  4. To Caledonia – Yes it is not a problem for anyone who came in to the industry after 2001 until 2016, but it will still become one, so it is better to resolve the problem and move from infinite (but probably unlikely/irrelevant) liability to some kind of a longstop, whetehr it be 15 years, 10 years (as the ministry of justice are intending), 25 years or even 40 years, but a LONGSTOP is justifiable and just gives certainty to BOTH consumer and adviser.

    I wonder if Nick Cicutti will publicly waive his right to a longstop as he says it is irrelevant? What do you think?

  5. Nic, is the longstop irrelevant to the old advisers who left the industry in say 1998 and are incapable of defending themselves because their files have been lost, shredded, gone mouldy or whatever, or they can’t remember with clarity what the claimants insist they do? My experience of your ‘infinitesimal minority’ assumption is completely the opposite, as time goes by the 15 year old ‘stale’ claims are popping up more frequently. I accept that complaints about poor advice on long-term products should be heard but not using 100% hindsight, we could judge what you or Which? might have said in the past based upon what is known now but would that be fair?

    In the words of Tony Blair
    Source:
    The Hutton debate in Parliament and the following is quoted from Hansard, Columns 770 and 771 on 4 February 2004 – the words are spoken by the Prime Minister:

    “I somehow feel that I am not being entirely persuasive in certain quarters.

    We cannot have a situation in which we end up translating what we know today back into the context of what was known and thought in September 2002, and then reaching a judgment.”

    QUITE!!

    Is it right for advisers to be picking up the tab for shorfalls created by the use of ‘Inappropriate Charges”? This applies to low cost endowments, pernsions, life products and anything else manufactured between April 1988 and January 1995. Does the fact the only IFas are creating a fuss about the long stop issue make any sense if those responsible, the providers, wanted to cover their backsides and let the distributors pay the bills whether it be directly, by selling their homes, or indirectly via the compensation scheme?

  6. Nic, is the longstop irrelevant to the old advisers who left the industry in say 1998 and are incapable of defending themselves because their files have been lost, shredded, gone mouldy or whatever, or they can’t remember with clarity what the claimants insist they do? My experience of your ‘infinitesimal minority’ assumption is completely the opposite, as time goes by the 15 year old ‘stale’ claims are popping up more frequently. I accept that complaints about poor advice on long-term products should be heard but not using 100% hindsight, we could judge what you or Which? might have said in the past based upon what is known now but would that be fair?

    In the words of Tony Blair
    Source:
    The Hutton debate in Parliament and the following is quoted from Hansard, Columns 770 and 771 on 4 February 2004 – the words are spoken by the Prime Minister:

    “I somehow feel that I am not being entirely persuasive in certain quarters.

    We cannot have a situation in which we end up translating what we know today back into the context of what was known and thought in September 2002, and then reaching a judgment.”

    QUITE!!

    Is it right for advisers to be picking up the tab for shorfalls created by the use of ‘Inappropriate Charges”? This applies to low cost endowments, pernsions, life products and anything else manufactured between April 1988 and January 1995. Does the fact the only IFas are creating a fuss about the long stop issue make any sense if those responsible, the providers, wanted to cover their backsides and let the distributors pay the bills whether it be directly, by selling their homes, or indirectly via the compensation scheme?

  7. The Mystery Shopper for IFAs 3rd November 2009 at 4:57 pm

    How come Nic Cicutti still got a piece he can write on financial issues? Why don’t you just go and live in Russia or China? As I think it may suit you better.

  8. I’ve said this before, so I’m a bit surprised that I need to say it again. But if anyone wants to sue me for something I said more than 15 years ago, bring it on….

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