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It’s all gone ‘Pete Tong’ at the FOS

27 Apr 2011

According to's FOS Survey poll results

The FOS is a strange being, it is there quite rightly to act as an arbitration service to resolve disputes where consumers are unhappy with the investigation outcome delivered by a firm in response to a complaint they have made. The recent PPI court case against the banks is a good example of positive actions taken by the FOS to deal with major institutional examples of miss selling when all else has failed.

But where it has all gone wrong, despite FOS denials, is that it is turning into an enthusiastic consumer champion in the eyes of very many IFAs and Providers alike. It is no longer being seen to investigate complaints fairly, on the basis of documentary evidence available and/or on the balance of probability with many IFAs expressing concern if not actual incredulity about some of the adjudication outcomes.

This is made worse because within this process, the FOS allows IFAs no affordable appeal process other than a judicial review against what are seen as flawed decisions. The complainant does have recourse to the courts, if they are unhappy with the outcome.

Can the IFA FOS experience really be as bad as some are suggesting, what is it that so many IFAs  see as wrong in their processes and attitudes. To see what our IFA members thought, we commissioned the FOS survey that was completed between the 8th April and 26th April to gauge the feeling in the “Trenches”.

It has proved a most interesting yet strangely frightening exercise in having the blindingly obvious confirmed. We would stress that the survey may not be representative of all IFAs as it's just members who responded but it could prove to be a good guide.

What really stands out from over 300 members, who very kindly responded with such enthusiasm to the survey, is the huge number of added comments that really speak volumes. These would suggest that the FOS needs to look closely at what it does, how and why.

Alarm bells should be ringing very loudly for example when:

  • 82% of respondents do not think FOS adjudications are fair
  •  92% of respondents do not think that adjudicators have a solid industry understanding of the issues they adjudicate on
  • 90% of respondents think that FOS rules place IFAs in a disadvantaged position from outset
  • 97% of respondents feel that a claimant should have to produce relevant tangible evidence to support the claim they make before the case can be considered and
  • a staggering two thirds of respondents have experienced false or manufactured claims in an attempt to gain compensation

This is a timely survey given the MM report that seven financial services trade bodies are writing a joint letter to Treasury financial secretary Mark Hoban calling for the powers of the Financial Ombudsman Service to be curbed within the new regulatory structure.

IFAs take complaints seriously. Pretty much all small IFA firms take complaints very seriously indeed. Why? Well they care about serving their client’s best interests and rules dictate that they should. But more importantly, a complaint can often be taken (rightly or wrongly) as a personal affront when the file is reviewed (if they have one, see our IFA bulletin) as it is often the case that investigations will show that the complaint has been manufactured - a miss-sale is a miss-remember either with the benefit of hindsight or with the potential benefit of compensation being paid simply for “passing go” with a false claim!

An additional factor in the serious investigation of a complaint is that any compensation that the client may be seeking is coming from their own often fragile resources that frequently fall short of a gap fill that could be provided by any PI cover they hold.

A handful of complaints found against a small firm can spell financial ruin by way of compensation payments and FOS case fees. PI excesses are so high as to render such cover as a disaster option only because insurers can no longer keep pace with the damaging effect of retro regulation.

Worse still, PI insurers have a tendency to settle cases because it is cheaper to do so rather than fight what is often seen as a wrong FOS decision.

Now I want to be very clear on this; the FOS will no doubt defend its actions and cite very many cases where a client has no doubt been ‘miss-sold’. And I am sure they are right, but the level of successful complaints found against IFA firms is very small indeed and the system itself has become victim to a number of damaging and toxic aspects of the unexpected consequences of the complaint resolution processes.

It is a fact that many major financial institutions are unhappy with the FOS and often settle claims they should not because it is cheaper to do so and they do not want to be seen in a bad light by the public, FOS and FSA.

This sadly has the effect of raising the expectations of the more unscrupulous in society. Link this with a systemic failure to control opportunistic claim chasers both corporate and individual from exploiting a system that has no downside if you loose and you have complete madness in a system set up to protect and compensate consumers.

In short, many IFAs think the FOS has been hijacked by the compensation culture, with staff often seen as not well enough qualified or equipped by way of experience to deal with false or manufactured complaints, often submitted with plenty of froth and bubble but no actual evidence.

Unlike the PIA Ombudsman under the control of Sir Anthony Holland, it is not a requirement that FOS adjudicators hold industry qualifications, when asked by IFAs what qualifications an adjudicator holds there is often a point blank refusal to answer the question.

IFAs often wonder why FOS adjudicators cannot see a manufactured complaint when it sits on their face. This may be because adjudicators have targets, their remuneration and possibly their job could be affected by failure to hit targets.

Click here to see the full survey results, comments and the full picture this survey exposes is well worth the effort. Click here to see them in chart form.

The results have been given to Mark Garnier MP, a member of the TSC to provide a greater insight as to whether the FOS is really seen by IFAs as either a Consumer Champion or a fair and unbiased dispute resolution service in the eyes of those who's good name and livelihood are most affected by their actions?

The results will also be passed on to Association of British Insurers, AIFA, the British Bankers’ Association, the Building Societies Association, the Council of Mortgage Lenders, the Association of Financial Mutuals and the UK Cards Association as this matter is so serious as to warrant attention and action on their part too.

On your part, please feel free to Tweet, e mail a friend or colleague with the links on this page and in our bulletin.


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Comments (4)

As the FSA accepts itself with regard commission bias, there is no evidence of it, but they are concerend about perception and it is the perception of commission bias that they say the RDR will address.
Having never had a complaint go to the FOS (we've only had one complaint in 12 years at all and that never got as far as the FOS as the client forgot to tell their solicitor the meeting was recorded as an MP3 file before they drafetd thir accusatory letter), the only experince of the FOS has been in the reverse (when assisitng a client with a complaint about Barclays Stockbrokers), where the original FOS staff were CRAP as they didn't obtain a copy of Barclays recordings (stockbrokers record phoen calls). It was only because I insisted that they were obtained that it went to a different FOS member of staff who having listened to EVIDENCE, then accepted our clients contention that Barclays were negligent. The ironic thing is that my client and I had pointed out from day one, that my client had been contributorily negligent and was seeking a fair agreement, not a stitch up of Barclays and had offered to enter mediation/discuss the situation like adults, which would have been less costly to all parties.
Anyway, my point is, it does not matter whether the FOS is or is not biased, it is the perception of bias and the perception of the ignorance of a longstop when it comes to the FOS which is the starting point of many IFAs objections to the whole FOS system.

Phil Castle   27/04/2011   08:24
Sheila Nicoll said the RDR was about the perception of bias and it is therefore, upon the balance of probabilities, only fair and reasonable that stakeholders (that's us advisers and firms) should expect, nay demand, that the FOS gives the perception of fairness and balance.

Yesterday I was advised that Sheila Nicoll is an anagram of 'in social hell' and this is the position many advisers find themselves in when faced with the confusion that frequently is a FOS adjudication.

Time for a change. It is reported that natalie Ceeney is dismayed at what she found when taking over from Walter Merricks. If so, now is an apt time to resolve the many issues that blight both the adjudication and jurisdiction process.

Alan Lakey   27/04/2011   08:52
There is another side to this. On occasion I have helped clients to complain to the FOS concerning their treatment by the banks. In one particular case, for a person I knew extremely well, but who wasn’t really a client. He had put all his life savings with a major bank. He knows nothing about investments, but knew enough to put the money in his wife’s name (who wasn’t a taxpayer).
The bank (knowing full well that he wanted a savings account) put him (or rather his non taxpaying wife) into an offshore bond which paid them (the bank) just over 6% commission. The disclosure appearing near the back of a very long KFD and - no surprise - the client didn’t spot it.

Anyway to cut a detailed story short the FOS found in the bank's favour – for heaven’s sake! They had got the client to sign bits of paper – so that’s OK then isn’t it!
One wonders what the result would have been if an IFA had offered this ‘advice’.

Harry Katz   04/05/2011   09:49
Harry makes a very interesting point - and one that I have also seen.

The old Ombudsman schemes provided an equality of arms between the "small" consumer and the large financial institutions with their limitless resources (at least in comparison to the consumer).

They had sufficient free rein to consider whether a consumer had a valid case even if they were not able to articulate it for themselves because, unlike the firm they were not able to get a specialist legal team to do it for them.

The FIMBRA arbitration scheme reflected the fact that most smaller firms were actually not that much better equipped to argue their case than the complainant.

However, the events which the old schemes considered were (then) relatively recent. It was relatively easy to find people who were already in the industry at the time and understood the prevailing market and consumer sentiment.

FOS does not have such resource available. There are now less of us left with that kind of knowledge to call on - and those of us with it are probably unlikely to be willing to investigate a complex place for the price FOS will pay (even if we were willing to go to Canary Wharf).

So corners are cut. Legal teams from big institutions are able to argue their case and get away with defences that would once have been ripped apart.

On the other hand, FOS tell us you do not need qualifications to decide whether advice is suitable despite the FSA saying you need them to advise. That is why an Ombudsman joined FOS from a telecommunications company in December last year and in January made an award on a complex dispute about a recommendation to a trustee - and awarded the redress to the trustee, not the trust!

FOS is not fit for purpose but that is not the danger. The danger is that it insists that it is. Only when it admits its folly will it start to become wise.

Peter Turner   26/05/2011   11:17


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