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The guide watchdog

It is time IFAs gave themselves a pat on the back.

According to the Financial Ombudsman Service, IFAs account for a relatively small amount of the disputes that they deal with. And this is set to be reflected in a lower levy.

Dispute resolution is now in the hands of the FOS, bringing all the disparate com- plaints&#39 handling bodies together as a unified service under one umbrella, including the work of the soon to be defunct PIA Ombudsman. This mirrors the consolidation of the regulators under the FSA, who in turn approves the budget and co-appoints the chairman of the FOS.

Only at “N2” – the as yet unspecified date when the Financial Services and Markets Act comes into force – will the FOS formally assume these powers. In an interim arrangement, the FOS has employed the staff of the PIA Ombudsman and leased them back to work under existing rules.

The FOS&#39s most recent report predicts a doubling of complaints in the investment sector, from 12,800 in 1999/ 2000 to 24,000 in 2001/02. At present, endowment mortgages account for over half of complaints against PIregulated firms. Complaints in the other sectors are not expected to rise significantly.

But at the same time that the FOS predicts complaints will soar, it also promises that costs will fall.

One of the ways that this can be achieved is through the development of different complaint procedures for different sectors.

Ringfencing IFAs from tied agents and multi-ties is welcomed by IFAs such as Syndaxi director Robert Reid, who says: “The one size fits all approach is not necessarily the one that works best.”

What does the rise in complaints mean? FOS spokesman David Cresswell claims it is due to the “far greater publicity” accorded to consumer financial affairs.

He says: “It is not as simple as saying that the rise in complaints is because more things are going wrong. It might well be the opposite. With greater transparency, consumers are becoming more confident in coming forward with complaints.” FOS says anecdotally that IFAs account for only 15 per cent of complaints.

The funding of the FOS will be dependent on the level of complaints and income that the different sectors generate. As IFAs account for a small percentage of the overall work-load of the FOS, the amount that IFAs will need to contribute is set to fall.

The general levy, currently collected by the PIA, will initially account for 50 per cent of the income of the FOS. The other half comes from the case fee that IFAs have to pay for each complaint that ends up in the hands of the FOS.

IFAs who log on to the FOS website might be surprised to see a banner describing itself as “a free, inde- pendent service for resolving disputes between consumers and financial firms”.

Under present PIA rules, the standard case fee is £500 but the FOS says this is likely to reduce. Many IFAs resent the level of this fee and the fact that even if the complaint is not successful, they do not get their money back. As a result, some IFAs think it is cheaper to dispose of the complaint rather than risk it going to the FOS.

Reid suggests that a different approach would have been more suitable, saying a two-way deposit should have been the way to go. He points out: “If you go to court and you win, you are likely to get some of your costs back.”

But it is precisely this kind of adversarial approach that the FOS wants to move away from. In line with the legal world, which has seen the introduction of dispute resolution, the FOS is trying to move away from the traditional approach in which one side is seen as “winning”. However, it will still be IFAs who foot the bill.

The FOS points out that a successful resolution of a complaint benefits all parties. It has appointed a liaison office, Caroline Wells, to advise on complaint procedures. It compares the service with “marriage guidance”.

The FOS says that the fee will not be payable in every case. If a case is felt to be vexatious, it can be dismissed without cost to the IFA.

The ombudsman requires firms to have effective in-house complaint procedures which consumers are made aware of. It says firms should aim to deal with complaints within eight weeks and tell consumers of their right to go the FOS if still dissatisfied, and that all firms need to report on complaints they have received twice-yearly.

The level of liabilities that the Investors&#39 Compensation Scheme has to deal could have an impact on future levies. The ICS is due to be incorporated with other schemes and will be renamed the Financial Serv-ices Compensation Scheme. The exact mechanisms are yet to be decided.

With the consolidation taking place in the industry, attention is focusing on the situations where an IFA firm fails and the client list and advisers go to another firm, leaving behind the liabilities. At present, the ICS has to pick up the tab.

Creswell sums up the role of the FOS: “We are trying to get IFAs to deal with complaints effectively themselves. We see our job as much as accident prevention as dispute resolution.”

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