Earlier this month the Financial Ombudsman Service announced that Natalie Ceeney would be stepping down as chief ombudsman.
The chairman of the Financial Ombudsman Service, Sir Nicholas Montagu, noted (with a sense of achievement) that “In the close to four years since joining, Natalie has taken the service from dealing with an annual workload of 150,000 cases to over 500,000 cases”.
This increase in cases has certainly been reflected in my own practice where the number of complaints I am being instructed to defend has increased greatly over the last year.
With this in mind, below are some top tips for dealing with the FOS.
- Have robust engagement documents in place
An engagement letter and terms of business which clearly set out the scope and circumstances of the firm’s advice and services can go a long way in helping defend a complaint where the scope of the retainer is in question. Contemporaneous documentation will almost always hold more weight than a party’s recollection of events.
- Engage early
Most people (including adjudicators) do not like to admit they are wrong. For this reason it is important to get off on the right foot with the FOS. At the start of the complaint, even before it has been referred to the FOS, the firm should thoroughly review the file they hold on the complainant in order to ensure their final decision is as robust and reasoned as possible.
A firm’s final decision will be an adjudicator’s first exposure to the firm so it is important to make a good impression and ensure, as far as possible, that the adjudicator’s ‘initial’ thoughts on the case are positive towards the firm.
Where a complaint is referred to the FOS, a firm should pick up the phone to the adjudicator assigned to their case at the earliest opportunity. Try and build a rapport with the adjudicator, this will put the firm in the best position to ‘help’ the adjudicator come to the right decision.
- Time Barring
The time barring rules can be a very effective way of extinguishing a complaint. Broadly a complaint will be ‘in time’ if it is made within six years of the advice or event being complained of occurring or, if later, within 3 years of when the complainant ought reasonably to have known they had cause to complain.
Where advice was given more than six years before the complaint, the complainant will attempt to rely on the three year rule. Going back to the first point above, doing a full review of the file and working out what information was provided to the complainant over the years following the initial advice can help enormously.
For example, if the firm can demonstrate the complainant received yearly updates on a particular investment which have been showing losses for several years the firm has a strong argument that the complaint is time barred.
What can also be key to a time barring defence is if the complainant switched advisers at some point after the original advice was given. If this did occur, and the new adviser informed the complainant about the allegedly unsuitable investments, the FOS may consider that the complainant ought reasonably to have known they had cause to complain from this point and the three year period would start to run.
As discussed in an article in May, the RDR may increase the amount of execution-only business. However, when it comes to the FOS, clear, contemporaneous documentation showing that no advice was given and that it was clear that the firm was not responsible for the suitability of the product will be necessary in order to successfully defend a case on the basis of execution-only. There is no halfway house when it comes to execution-only so the firm needs to be very clear with the client, and clearly document that it is execution-only business.
- Consider causation
Always consider whether alternative (and allegedly more suitable) advice would have made any difference to the outcome. If the answer is no then the firm may have a defence. Also, consider whether any events have ‘broken the chain of causation’. For example, a new adviser changing the complainant’s investments – if loss is suffered after this point the previous firm may not be liable for it.
If you are the new adviser, and are advising your client that their investments are unsuitable for them, do not forget to tell the client (in writing) about the time barring rules. We have seen a suggestion from the FOS that not advising a client of the time barring rules, where the client has been informed that their investments might be unsuitable (thereby potentially setting the three year time barring period running) could be cause for a complaint against the new adviser in its own right.
When considering the firm’s exposure do not forget that the FOS can award interest, usually at a rate of 8 per cent per annum simple, on the sum awarded. The FOS can order that interest be paid from the date the loss crystallised up until the date of payment. In very rare cases the FOS can also award costs to the complainant and interest on those costs. Any interest and/or costs awarded to the complainant are not caught by the £150,000 limit and will be paid in addition to it. So where the loss is significant, and crystallised several years ago, the firm could end up paying a great deal more than the £150,000 limit. This is worth bearing in mind when considering settlement offers.
Do not underestimate the cost of management time in dealing with FOS complaints. FOS complaints usually take several months, if not a year, to conclude and there is a heavy burden on firms to engage with and provide information to the FOS. In some cases a reasonable and early offer can save a considerable amount of time, as well as money.
Whatever the reputation of the FOS, it is not going anywhere and wields considerable power over firms. As a result, it is up to firms to try and make the system work for them as far as possible. This has got to be better (and less costly) than a head-in-the-sand approach.
Claire Williams is a solicitor at Foot Anstey