Apfa is preparing evidence to persuade the FCA that the introduction of a 15-year long-stop would be beneficial to consumers, in the hope of finally eradicating open-ended liabilities for advisers.
In its 2014/15 business plan, published this week, the FCA says it is considering whether to place a 15-year limit on complaints to the Financial Ombudsman Service.
The plan says: “We will consider the case for a 15-year time limit on complaints to the FOS to review whether the current arrangements are delivering the best outcomes for consumers overall.”
Apfa, which has long campaigned for the introduction of a long-stop, says the challenge for the adviser sector is to demonstrate to the regulator the move would be of benefit to consumers.
Apfa director general Chris Hannant says: “The challenge for us now is to demonstrate the impact on the industry and consumers through some robust numbers and supporting evidence. We need to demonstrate this would be of overall benefit to consumers through a better working market.”
Advocates of a long-stop argue it would create greater certainty over liabilities, therefore encouraging investment in the adviser sector, making advice businesses easier to sell and lowering regulatory costs.
They claim this would also benefit consumers through greater availability of financial advice and lower advice costs.
Zurich principal for government and industry affairs Matthew Connell, who worked with Apfa on its 2012 Fair Liability 4 Advice campaign, says: “A long-stop would make it easier for advisers to quantify their liabilities and therefore easier to sell on their firms at retirement.
“It would also make it easier for advice firms to consolidate and achieve economies of scale, which would ultimately mean a greater supply of financial advice for consumers.”
Connell adds 15 years is sufficient time for consumers to realise something was wrong with the advice, and argues after that point clients and advisers’ memories are not good enough to accurately recall conversations.
But opponents of the proposal say pensions and investments are long-term products and 15 years may not be long enough for consumers to complain.
Fairer Finance founder James Daley says: “It is quite possible to have been missold a pensions or investments policy and only realise it decades later. A long-stop would be of benefit to businesses but does not seem like a very consumer-friendly move.”
Daley says while a reduction in regulatory costs may offer a “short-term gain” to consumers, the industry must prove “it no longer missells products” to benefit consumers in the long-term.
The FSA has in the past rejected proposals for a long-stop on the basis it would not be in the interests of consumers.
But supporters believe the change in regulator and introduction of the RDR means the profession’s lobbying efforts are more likely to be successful this time.
Connell says: “The big difference this time is the post-RDR landscape and the higher standards of professionalism for advisers.
“It means they can now credibly say it is on a par with other professions like solicitors and accountants. This is what we need to emphasise in discussions with the regulator.”
Tenet launched an e-petition in August calling for the introduction of “fair liability for financial advice”, which has 5,072 signatures so far. If it reaches 10,000 signatures the Government’s petitions committee can recommend an inquiry or seek a response from the relevant minister.
Tenet group brands director Mike O’Brien says: “I think the FCA is more open to a sensible dialogue with the industry on this issue than the FSA was.
“Having protection at a cost which is unsustainable is not in consumers’ best interests.”
A FOS spokesman says only a very small number of cases would be affected by a 15-year long-stop.
He says: “We do recognise the lack of a long-stop has been a concern for advisers. But last year complaints about financial advisers made up only 1 per cent of the complaints we looked at, and of those only a small proportion would be affected by a 15-year long-stop.
“Where there are cases of that nature they get a great deal of attention and that can give a skewed view of what is happening on the ground.”
Connell says this supports calls for a long-stop. He adds: “This means the impact of a long-stop on consumers would be low, but for investors coming into the adviser market perception is very important and if the perception is advisers are vulnerable to legacy complaints then investors will hold back.”
Hannant adds the FOS’s argument “misses the point”.
He says: “The point is legacy complaints affect small advisers in a very personal way in their retirement.”
Retired IFA John Calland’s long-standing battle with the regulators perfectly illustrates these concerns.
Last May the High Court dismissed Calland’s judicial review relating to a FOS decision to uphold a pension misselling case against him, for advice given in 1992.
Calland has been ordered to pay £48,105 plus interest, as well as £35,000 in FOS legal costs, and is now taking his case to the European Court of Human Rights.
Calland says: “The introduction of a long-stop is long overdue. For the last 13 years I have been fighting this case and my wife and I have been living a nightmare.
“I am now 75, we have spent about £150,000 on lawyers and we still wake up at 3 o’clock in the morning worrying about this.”
Mergers and acquisitions firm Retiring IFA founder Stephen Hagues says a long-stop would also benefit advisers reaching retirement by simplifying the process of and reducing the risks associated with purchasing advice firms.
He says: “There would be more interest in acquiring advice businesses, and fewer legal complications and costs involved in sales.”
Philip J Milton & Company managing director Philip Milton says: “The lack of a long-stop continues to perpetuate phoenixing where limited companies close down because that is the only way to close the door on the past.
“I am hopeful this time the regulator will act because this is in the interest of both the industry and consumers.”
The long-stop: The story so far
1980: Limitation Act imposes time limits within which a party must bring a legal claim, including a 15-year long-stop for negligence claims.
2000: Financial Services and Markets Act introduced. Regulators say this overrides time limits of Limitation Act.
June 2007: FSA reviews the case for a long-stop.
November 2008: FSA announces it will not introduce a long-stop after deciding the additional benefits for consumers and firms would not outweigh the potential detriment to consumers.
February 2012: Aifa and Zurich launch a campaign, Fair Liability 4 Advice, to introduce a long-stop for advisers.
August 2012: Aifa secures an amendment to be tabled on the long-stop as part of the House of Lords scrutiny of the Financial Services Bill.
October 2012: FSA refuses to give a firm commitment to reviewing whether a long-stop should be introduced; says it will consider whether to review the arguments for establishing a long-stop.
The introduction of a long-stop would create certainty, while still giving consumers plenty of time to review matters and complain. That means if a firm is trying to evaluate a business for investment or acquisition purposes, it can have greater confidence about risk. It also helps professional indemnity underwriters because they hate open-ended liabilities.
Hopefully it would lower PI rates and create a better market for run-off cover. The introduction of a long-stop would make the biggest difference to sole traders and partnerships by giving them peace of mind, where otherwise legacy claims could potentially hang over them for their entire retirement.
It has been argued the lack of a long-stop protects consumers, but the cost is passed on to consumers.The challenge for us is to demonstrate the impact on the industry through some robust numbers and support that with evidence.
We need to look closely at the impact on the consumer and demonstrate this would be of overall benefit through a better working market. If people keep their finances under review they would never get anywhere near 15 years before any problems are identified.
Chris Hannant is director general at Apfa
The problem with a long-stop is often that consumers do not know they have had bad service or cause to complain.
It is quite possible to have been missold something and go to your grave not realising it, or to only realise it decades later.
A long-stop may be more suitable for some sectors than others – for instance, for a home insurance policy it seems very unlikely a consumer would have cause for complaint after 15 years.
But when it comes to pensions, investment or even mortgage advice, these products have a very long lifespan and it can take decades for customers to realise they have been missold, so we would be very wary about this being introduced across the board.
There may be some short-term gain for consumers in the reduction of regulatory and professional indemnity costs, but that is not the right place to start.
The best way to bring down costs for consumers is for the industry to prove over the long term that it no longer missells products.
We need to start with a regulatory regime that protects the consumer.
James Daley is founder of Fairer Finance
Other professions benefit from a long-stop, and in most cases the grounds for bringing a complaint would have come to light within 15 years. Under the current regime firms advice firms that recruit or acquire other firms are taking on liabilities indefinitely. You don’t want to be 80 years old and having to investigate a complaint dating back to when you were 40, which is the ridiculous situation at the moment.
David Gibson is director at Gibson Financial Planning
The regulator seems to be fairly adamant that it does not want to introduce a long-stop. As advisers, we probably did not have a leg to stand when we were arguing for a long-stop before the RDR. But now that we charge fees, we should have the same rights as any other fee-charging profession, including a long-stop.
Dennis Hall is managing director at Yellowtail Financial Planning