But if we move away from the legal rows and concentrate simply on fairness and the type of IFA sector the FSA says it wants to encourage, I think there is a compelling argument the regulator needs to listen to.
The fourth chapter of the FSA’s RDR story is due to be published towards the end of this month and so far the regulator has refused to budge on the long stop.
The FSA’s November 2008 RDR paper rejected widespread calls for IFAs to be brought in line with the statute of limitations afforded to other professions, which sets a 15-year long stop on complaints to avoid indefinite liability.
In typical regulatory jargon the FSA stated it was unable to justify offering financial services firms the same rules as other professions as the costs/benefits could not be properly quantified.
The paper read: “To justify the introduction of a ‘long stop’ time limit on the period within which complaints must be brought, we needed to identify benefits to firms or consumers beyond the savings for firms in compensation payments. This is because the savings in compensation payments are the same as the costs to consumers from the introduction of the long-stop.”
The regulator went on to say that although it received strong representations on the issue, no-one was able to demonstrate the net benefits to consumers.
The trouble is it is very hard to quantify the benefits to consumers in the way the FSA wants. Aifa and others tried in their representations to provide this evidence but it really is not an easy thing to do.
I can’t help but think that in asking for this sort of elusive evidence the FSA has found a convenient excuse to park the long stop and not upset the consumer lobby.
Rather than asking for the industry to produce evidence that they should be treated the same as every other profession, should it not fall on the regulator to provide firm evidence why IFAs should not be afforded this right?
Let’s look at the evidence the FSA provided in its November paper. The Financial Ombudsman Service estimates a 15-year long stop would time bar 2,000 cases a year, excluding endowment mortgage complaints which are set to fall dramatically. The FSA says its research shows a further unquantified number of complaints over 15 years are upheld by providers.
Recently, the FOS revealed that 3 per cent of new complaints were against IFAs and of these around 30 per cent are upheld.
It is too clumsy to simply read these figures across to the 2,000 time barred cases a year- the current figures are skewed by PPI and all the other recent misselling antics from the banks.
But it is clear the FSA is holding the Sword of Damocles above the heads of the whole IFA profession for a small number of complaints.
The FSA’s argument only looks at the broad question of should a long stop be introduced across financial services. What about just considering it for IFA firms, or debating as part of the RDR whether it should be introduced for smaller firms under a certain size? Providers can fight their own battles.
Establishing the 15 year long stop for advisers would encourage new investment into the IFA sector, creating a more vibrant, professional and stable industry to serve consumers.
The absence of a long stop makes it much harder to attract new sources of investment or sell on an IFA business. Potential investors are wary of open-ended liability.
With the FSA apparently focused on increased consumer responsibility, the introduction of a 15-year long stop would encourage consumers to take more care of their financial affairs.
In cases of suspected fraudulent activity the 15-year long stop could be over-ruled, addressing concerns that it would be used by the unscrupulous as a wall to hide behind.
With responsibility being one of the buzz-words of David Cameron’s Conservative party, implementing the long stop for IFAs should be high on their financial services agenda if they are elected and the FSA continues to refuse it.
As part of the RDR, the FSA says it wants to encourage a more sustainable advice sector, based on increased professionalism and more transparent remuneration strategies.
Advisers are already showing their willingness to move in this direction and by introducing a long stop the FSA can show it is serious about supporting professional IFA firms into the future.