It seems from our clinic postbag that the subject of complaints
continues to get IFAs hot under the collar and not without just
cause. As usual, we include a round-up of readers' questions, after
which we ask if there is light at the end of the tunnel.
Q: As a sole trader, is it appropriate that I deal with a complaint
relating to advice that I have given?
A: This is a common dilemma facing many sole traders who may feel
they are unable to review impartially a complaint relating to advice
that they have given. In the DISP section of the FSA handbook, the
rules relating to complaint-handling procedures require that
“complaints be investigated by an employee of sufficient competence
who, where appropriate, was not directly involved in the matter which
is the subject of the complaint”.
While this would allow you to delegate the investigation to an
employee, you would need to consider whether that employee had
sufficient competence to investigate the complaint and, most
important, you would need to feel comfortable in their ability to do
so. In our experience, a more robust response to a complainant can
usually be provided by a third party outside the firm, which also
serves to reinforce the element of independence.
Q: I may need to settle an endowment complaint. Is there a method of
calculating compensation and what happens if, at maturity, the
endowment has performed sufficiently well to repay the loan?
A: As a starting point, when considering compensation for any
inappropriate investment advice, the rule of thumb is that the
investor should be put back in the position they would have been in
prior to the advice. In extreme circumstances, it may be necessary to
consider whether the investor has suffered any distress and
inconvenience which may warrant a nominal payment.
Within the DISP section of the FSA handbook, the Annexe 2 guidance
shows how compensation should be calculated when assessing endowment
complaints. There are a number of factors you will need to consider
to arrive at an estimated figure and the guidance takes into account
a range of scenarios.
In our experience, there is usually a deal to be done with a
complainant when it comes to agreeing any compensation in settlement
of a complaint. In this respect, you should be aware that the FSA's
views on how endowment losses should be calculated are only guidance
and not a rule.
Before making any offers of compensation, it is imperative that you
obtain the agreement of your PI insurer. Key points to bear in mind
once you make the offer are that it should be on a “without
prejudice” basis and you should always obtain written agreement from
the claimant that they accept any compensation as being in full and
final settlement of all and any claims relating to the matter.
The second part of your question highlights what many of us consider
to be a fundamental flaw in any situation where redress is offered
based on a snapshot of a long-term investment. The same situation
occurred with pension reviews where investors were being offered
redress based on a calculation that suggested they had suffered a
prospective loss on a policy that in most cases was many years away
from maturity. In partial recognition of this, firms were allowed to
offer guarantees rather than pay out compensation at the date of a
loss calculation. Unfortunately, there is no mechanism that provides
for revisiting endowment or any other review cases where compensation
has been paid to assess at maturity whether there has been an
Q: Is there light at the end of the tunnel?
A: This is a question many IFAs are asking with regard to the
increasing number of complaints they are seeing. We feel that
complaints will grow as the compensation culture becomes more
widespread. For IFAs, the only reducting factor would be a resurgence
in stockmarkets. The extent to which clearly vexatious complaints are
able to succeed in reaching the Financial Ombudsman Service was
highlighted in the February edition of Ombudsman News, which featured
a ludicrous claim for compensation from a customer for £670,000
because, unfortunately, endowment policy documents had been sent to
the customer's previous address. The customer demanded compensation
from the firm comprising:
£500,000 for stress, severe emotional trauma and depression.
£75,000 for loss of income.
£20,000 for the cancellation of a holiday.
£75,000 for unwelcome intrusion into his life by criminals.
Although the firm went out of its way to apologise and offered
£500 compensation, the FOS still felt it necessary to
investigate the complaint. Although it was not upheld, it serves to
highlight the threats that firms face from complainants for a case
such at this, which clearly should not have been entertained by the