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The FOS and the Hunt for the “misremembering” consumer

I wonder if the ombudsman service has ever considered in any detail the behaviour of consumers, what turns them into complainers and whether some of them should ever have been complaining in the first place.

Frankly, I don’t think the Hunt review does enough to prompt such necessary reflections from FOS.

The review is a well written and well argued document and some of the ideas will appeal to IFAs. Advisers will certainly like the recommendation for claims management firms which claim vexatiously to be charged. They may also like the idea of getting the FOS to publish what it is doing in detail if it helps with consistency. I have lost count of the number of IFAs who have complained to me that complaints against them have either been misunderstood or rules misapplied. They suggest that judgments on very similar cases seem to be more closely related to Britain’s changeable weather than to any regulatory principles.

On the other hand almost as many IFAs say when they have unravelled another adviser’s bad and financially disastrous advice and realised that the only way their client is going to get their money back is to go to the ombudsman, they hit the same barriers of lack of understanding and consistency – tax and trusts appear to be a particular weakpoint. Indeed from such conversations, I can’t help but wonder if the FOS is suffering from some of the same stresses and strains as those uncovered in the middle and lower ranks of the FSA in its internal inquiry into Northern Rock.

But the idea of a FOSbook is a very good one that may help bring a bit of discipline to these decisions as well as letting the industry better know what is expected of it.

So that is at least one and half cheers for Lord Hunt but I think he has missed a trick in not investigating the case of the tricksy complainer.

Wouldn’t it have been fascinating to try out a little bit of game theory on the ombudsman? What sort of output would the academics get if they tested a system that allows consumers to complain about bad advice from years ago, even when they don’t have the paperwork, when the firm they are complaining against doesn’t have the paperwork, and the general tone of the media is that “everyone must have been ripped off, it’s the financial services industry after all”. Combine this with the establishment of no win no fee in the legal market to show claims chasers how to do it and add a dose of advertising on daytime TV virtually guaranteeing payment – in between the ads for dodgy loans – to see what sort of outcome you get.

We may require a slightly different calculation for the present day where the advisers know they better have the paperwork but some of the same principles apply.

Economists may raise a weary but economically efficient eyebrow at this following effort but I reckon I can come up with a bit of an equation for what has been happening with the ombudman.

“Unmeasurable possible loss X” + “advice given and taken Y years” + “no requirement to keep records for Z number of years” multiplied by 50 claims chasing companies taking as much as 25 per cent of the proceeds = a huge number of consumers misinterpreting what they were told when they were sold in a bid to get compensation awards.

If the compensation system encourages Hillary Clinton-like misremembering then it creates an ombudman system which is a massive burden on UK financial services and a drag on savings too. I am not suggesting that there shouldn’t be an ombudsman but I am suggesting that some sacred cows need slain. That may include finding a way to charge for all vexatious claims. There is an assumption of saintliness on the part of consumers which is clearly nonsense. Consumers are people and are as saintly or as sinful as the rest of the human race. Someone needs to model how much the current system encourages consumers to misremember. If the percentage is too high then everyone is paying an economic price – and that means some consumers are hurting not just practitioners but other consumers and potential consumers by their own bad behaviour. Unfortunately the Hunt review may have failed to offer ways to slay that particular beast.

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