17th March 2021

Nightmare on Compensation Street

I sometimes awake in the middle of the night, bathed in sweat and breathing heavily.  For a minute or so I’m confused and disoriented and then, after the mental turmoil subsides I realise it was only a nightmare. In my nightmare I had worked at a Claims Management company (CMC).

Now there cannot be many occupations that gnaw away, chewing through your conscience and self-esteem as this one.   Whilst I have been assured that there are some well-meaning individuals out there who believe they are performing a worthwhile task, my experience is that it is a netherworld, a bleak landscape, a form of purgatory where anything goes and dog eats dog and pretty much anything else that looks an easy lunch.

Recent radio and TV advertisements bear this out.  Brazen attempts to persuade people to complain – via the CMC of course – if their investments have been miss-sold.

What defines miss-sold?  Again, my experience is that any investment that has fallen at any time constitutes fair game for these poachers.  Having snared a complainant their first trick is to undertake a fishing expedition where a subject access request is used to obtain a client’s file.  This enables a search for something, anything that might enable a complaint to be levelled.

It follows that any such implied compliance failure is turned into a formal complaint which, if refuted, is automatically escalated to the Financial Ombudsman Service (FOS) as this attracts no financial outlay or responsibility.  Success here relies on the caprice and variability of the unqualified FOS adjudicators.  It is also dependent on the ability of the financial adviser to adequately defend his/her actions and the support or otherwise of the PI insurer.

Claims Management Companies have to be approved and licenced by the FCA and we are told that many have fallen foul of the rules and been banished, with others cancelling their applications rather than be denied.  However, there are many firms of solicitors who have been able to escape the scrutiny of the FCA as they are regulated by the Law Society, a body which appears to have a much more relaxed view of fishing and, ultimately, wrongdoing.

Solicitors demeaning themselves in this way are essentially a UK version of that pilloried and much criticised creature the ambulance chaser, although lower on the evolutionary ladder, maybe.

The Law Society has often defended solicitors, something that you never see the FCA attempting with regulated financial advisers.  Surely it’s time for the Law Society to intervene and put an end to this blatant fishing and the implication that any investment that falls in value must therefore be miss-sold. 

The Advertising Standards Authority has washed its hands and relies on the Law Society and FCA to do its job for them, as the guideline on its website reveals.

From 1 April 2019, the Financial Conduct Authority (FCA) assumed responsibility for the regulation of claims management companies. Ads for these companies should adhere to the guidelines given in the ‘Financial promotions and communications with customers’ section of the Claims Management: Conduct of Business sourcebook (CMCOB 3).

Ads for products by FCA-regulated businesses (such as claims management companies) are likely to be outside the ASA’s remit. However, as with other financial ads, the CAP Code does apply to “non-technical” aspects of ads for these companies, such as matters relating to offence, social responsibility, superiority claims, fear and distress, competitor denigration and claims that do not relate to specific characteristics of the product. 

If an advertiser is unsure about the legislation they need to comply with, marketers should seek legal advice. A section on the FCA’s website, entitled Financial Promotions, gives general advice such as ‘Key Issues’ and ‘FAQs’. Please note, however, that the FCA does not pre-approve proposed financial marketing communications for authorised firms - technical guidance is available on specific matters or rule interpretations only, not on the advertisement as a whole. See the FCA’s website for more information www.fca.org.uk.

Claims management companies add nothing of value and, historically, have lied and cheated in the hope that the FOS will uncover something that results in an upheld complaint.  Not only are they a blight on the financial services industry but they waste advisers time and promote the view that financial advisers are untrustworthy and grabbing when, the reality is, that it is the CMCs that fit the description.

Alan Lakey: Director at Highclere Financial Services, critical illness guru and also historian at CIExpert

Regulation, FSA/FCA