Surely the views of Financial Ombudsman Service are a key component of the RDR so where are they?
We know what the FSA thinks or at least did at the RDR’s launch. And new boss Hector Sants may let us know what way the wind is blowing next week. But what of the man who has been consistently in the top ten influencers on the financial services market since FSA regulation began, Walter Merricks. Why does the man regarded by many advisers as the real regulator, keeps his counsel?
Has the FSA conjured up these plans, and rudely not asked the FOS. Terrible way to regulate a market you might say. Or am I wrong? Is the ombudsman service content with what has been suggested. On the other hand are staff at the organisation quietly fuming as the RDR unravels years of hard work? Is the concept of the primary adviser just a little too black and white for your taste Mr Merricks?
You see that is the problem. You won’t say. So the Money Marketing editor is going to consider one or two problem areas. This may be a bit presumptious but given how rude we’ve been to some of the FSA folk, I’m sure you’ll take it on the chin. It is not like you are not used to the occasional brickbat and your unflappable lawyer’s demeanour and extensive outside interests suggest can probably keep things in perspective.
First a little bit about what we think about FOS. Well we think, as do many advisers, that the balance is not quite struck in the right place. Some of those endowment claims, as you see from Lord Lipsey’s comments recently, may come from customers and clients chancing their arm. The world of the claims chaser or claims manager depending on your point of view has not exactly led to an easy, settled market.
The real fault may lie with the drafters of the Financial Services and Markets Act. It seemed like a great idea, and a very new Labour idea at that, to create an ombudsman that was free to use rather than cheap to use. As a bonus it had popular appeal but cost very little or at least cost the Exchequer very little.
When you talk to advisers, they probably fit into three groups – those that are satisfied with the service for saving them from the travails of court actions, those that are passively disgruntled, and those who burn with a passion at the injustice of watching a client who they have worked for to the point of exhaustion turn on them and lie about what happened.
I would argue that the emphasis is wrong in an era of “consumerism” and some thought needs to be given to a modernised ombudsman service for a modern if somewhat unappealing world where people may not always be entirely honest and can be coached to play a system, just as companies and advisers can be dishonest when defending cases.
So here is my first rude assertion – that any review of retail financial services should have considered the FOS in some detail, particularly when it is often ombudsman decisions that can set off a train of events that leads to firms going bust and falling on the compensation scheme or heaven forbid phoenixing.
But that is enough of the things the RDR documents should have mentioned. Maybe we shouldn’t make it any longer. What of the bits they included? In something that shows advisers do not think completely ill of the FOS, many IFAs in the act of combating the FSA’s accusations and assertions are firing ombudsman stats at the FSA with one pretty simple message “Banks bad – IFAs good”. In a way that should be rather heartening for your organisation in that to use any organisation’s figures is to give at least some credence to the organisation itself. But do you and your staff, as the closest thing we have got to regulators at the coalface, agree? You may be able to say that the FSA is correct to suggest a regulatory dividend for the better qualified. You may argue from experience that given the complexity of cases the better qualified advisers advise on now, a regulatory dividend is a nonsense. Once again, we do not know.
If I am so bold, I doubt that you have any qualms about much of the RDR. Would you fight shy of more exams for advisers – we doubt it. As a better description and consideration of how the advice is paid for, I doubt you toss and turn at night fretting about how customer agreed remuneration throws a spanner in the workings of the ombudsman, though we would love to know what you really think of commission.
You may wonder what happens if large numbers of advisers disappear and big corporate multi-ties rule the financial services roost. Do you care for example whether independent means whole of market?
Would these multi-tied groups settle claims more easily or would they, as some providers are suspected of doing, use the ombudsman as a cheap alternative to having a decent complaints service themselves? IFAs may fight complaints tooth and nail but do they fight them systematically citing fiduciary duty or not bother at all because it is cheaper for the shareholders?
And so we come to primary advice and the ombudsman. Here we must quote one senior FSA official from a a couple of months ago: “It may not represent the most suitable advice or products but it must not result in unsuitable advice or products.”
Is that good enough for you and your staff? How does that play working – dread word retrospectively – say in the case of a missold stakeholder pension. Has that problem never crossed your path suggesting that product regulation could work for primary advisers? What of the FSA’s belief that advisers who fail to change model may be moved into a less “suitable” world but perhaps with more restricted products? Should they fall under your remit or not? And what sort of backstop do you feel is appropriate?
Will we witness the strange case of the ombudsman for the rich and nearly rich and unaffordable courts for the poor? Is that what you’ve been doing all these years? This is why I feel that this whole debate is crying out for your input. You might say some things IFAs would hate. But we’d love to know what you think regardless of any silly regulations or conventions that say you shouldn’t get involved in the process at a discussion phase. There are far too many questions. Silence in this case is not golden. It is actually the reverse.