Hotel California

 

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I think my mind is sometimes not operating as it should.

I was watching a great two part documentary on the Eagles last week, singing along, “There she stood in the doorway…………..This could be Heaven or this could be Hell”

Then my mind ventured back to thorny issue of the longstop. It seems to have been parked somewhere whilst the industry adapts to new practices, improved qualifications and an FCA honeymoon period.

So what is happening? Is APFA about to get “jiggy” with the matter, are advisers still angered by the lack of it or should we all ‘play nicely’ with “Uncle Martin’ and get on without it?

I decided to re-read a lot of content on our site regarding the subject and in doing so it really got me, shall I say, agitated all over – again. Simply type in the words ‘longstop’ in our Panacearch box near the top right of the home page and see what information comes up.

There are pages of it.

A more recent search result on the subject caught my eye after noting that Ms Ceeney reckoned last year that advisers would be a “lot more worse off with a longstop”?

Putting to one side the ‘gramatics’ and the song lyrics, I was quite taken aback by this statement as it implied that advisers are already at the “worse off” starting block under the investigative eye of the FOS.

On what quantative scale “a lot MORE worse off” is found, is unknown but clearly not good news.

Ms Ceeney and staff, in some eyes, can appear to take a less than neutral position and although it is very important that consumer rights are well protected, those it investigates have rights too. The FOS is meant to be impartial, investigating complaints fairly, taking into account the evidence available and/or considering the balance of probability.

The removal of the longstop was a quite calculated, not too well consulted upon result of the process of implementing FSMA 2000. There are many who consider the removal unlawful.

As Julian Stevens observed in August 2011-, “For a long time now the regulator appears to have an agenda of stirring up trouble where none existed before, an agenda that the FSA seems more than ever determined to pursue, despite a catalogue of failures to get to grips with problems that really have needed tackling”. The removal of the longstop was at the start of that agenda.

Peter Hamilton writing in May 2011 for Money Marketing“there is so close a structural connection between the FOS and the FSA as to cast doubt on whether the FOS can be regarded as independent of the regulator. Thus, for example, the FSA appoints and may dismiss the chairman and directors of the FOS. The chief ombudsman and the FOS must report to the FSA on the discharge of their functions and the FSA must approve the budget of the FOS”.

Ms Ceeney said in an interview with FT Adviser “the main issue is that financial products are often bought many years before an individual needs them, such as a pension plan. The longstop would mean there is no way of coming back if sold an investment product for many years down the line. The problem is the nature of financial services is very different to other industries because you won’t find out until many years later – that was the case with mortgage endowments.”

The point that seems to be missed by all those in Regulation Street opposed to the re-instatement of the longstop is that the removal flies in the face of the protection the laws of the land bestowed upon UK citizens and now, it would seem, afforded to all except advisers.

Regulation may not always be fair in the eyes of those who fall under its ‘spell’, but one cannot simply disenfranchise one particular business community or indeed any community from another in such a way.

The problem with investigating claims so long after the event is that the recollection of circumstances, aims and aspirations has a tendency, especially if documentary evidence is scarce or non-existent, to be inconsistent at best and manipulative at worst, and that goes for both sides.

That is why the Limitations Act came about, to protect against the effects of “Stale Claims” where the passing of time and lack of evidence makes it difficult to make a judgment.

However, the FOS operates on the ‘Merricks’ principle – they can and do make the law with the cloak of protection the FCA offers to it.

Some other ill informed or ill-judged points Ms Ceeney makes:

  • “That the courts do not have a six-month deadline like the FOS does”. True, yet the complainant can revert to the Courts and rerun the case if they are unhappy with a FOS decision. But the courts do have a six-year cut off tied in with a fifteen-year absolute stop. An ADVISER firm can only make a request for a Judicial Review- at huge cost and the decision is not guaranteed.
  • “We don’t have a long-stop but we have lots of restrictions around. Complainants only have six months to go the FOS once the complaint has been raised with the firm, which the court doesn’t have”. True in practice, but I think that many advisers will have had experience of this not actually being a reflection of what happens. The FOS has been seen in the past to actively assist complainants by creating new or further complaints not actually made at the time of the initial complaint to the FOS or the indeed the firm.

And:

  • “The 6 month deadline is there to ensure this doesn’t go on indefinitely”: A bit of a red herring statement. I thought that was what the longstop was for Ms Ceeney. Although the Limitations Act was set up to deal with the passing of time, she seems to have overlooked the fact that complaint rules change often and apply retrospectively.

The timescale you have to complain is six years after the date of advice given or three years from when you could have become reasonably aware that you may have a problem. So that is in fact nine years. The six-month deadline applies to making a complaint after receiving a firm’s final decision letter.

We have as an industry seen complaint rules change and the problem is that with FSA, now FCA and FOS rules today, everything, anything is applied retrospectively and it is the adviser firm that carries the can for the rest of their life in many cases as a result.

This retro protection makes PI markets difficult, sometimes even impossible for firms, compensation can often paid for events that did not actually happen and what was accepted as right for a client a decade ago can be found wrong today with the benefit of hindsight.

Peter Hamiliton summed up the whole position in MM very well as follows. “Thus, under the law, I know in advance where I can and cannot park my car. But if I could park only where some official specified after the event, I would have no right to park at all. Similarly, if my right to my possessions is watered down to mean only a right to hold them until the FOS decides it is fair and reasonable for me to pay them to somebody else, then I have no “right” in a true sense to my possessions at all.

This conclusion is reinforced by the fact that there is no appeal and the fact that any judicial review of a FOS decision on the merits of a case is, for all practical purposes, impossible because of the vagueness of the subjective (“in the opinion of the ombudsman”) fair and reasonable criterion”.

So, as the Eagles may conclude:

“Last thing I remember, I was

Running for the door

I had to find the passage back

To the place I was before

“Relax, ” said the FOS man,

“We are programmed to receive.

You can checkout any time you like,

But you can never leave! “

 

Only 10 Percent?

I read with a mixture of incredulity and despair that discussions regarding ways to put an end to PPI claims have broken down with no positive ‘outcome’ for those consumers miss-sold PPI.

That was the despair.

The incredulity?

It was reported that Natalie Ceeney, chief executive of the FOS, claimed last month that only 10% of customers ever sold a PPI policy had so far made a claim for compensation.

Ms Ceeney has criticised the banks for “demonising customers” and said the ombudsman would be hiring a further 1,000 staff in the next six months to help deal with PPI claims.

What is going on out there?

Whilst not doubting there has been miss-selling of the product, a whole industry of ambulance chasing CMC’s  have long ago set up camp (quicker than the current Romanian model seen at the disused Hendon FC ground) to feed upon misfortune and with only 10% having claimed, it is clear now what the CMC sees as opportunity.

In January the FOS said it expected to see a 42% rise in new claims in the current financial year, driven by an unprecented number of PPI cases, which had “dramatically exceeded” their assumptions.

That would, if my math’s is correct take the figure to 14.2% of customers miss-sold a PPI policy.

The PPI issue and CMC’s has been a scourge to advisers and also it would seem the FOS. But with all this noise and massive marketing spend providing encouragement to claim, if only 10% of those ever ‘sold’ such policies have expressed discontent and made a claim, are we looking an industry attempt to now ‘groom’ claims from the remaining 90% that appear not to be troubled or simply do not care?

The latest estimates show that the total cost to banks for miss-selling PPI is likely to come to £25 billion, almost double the near-£13 billion banks have already put aside.

In a recent consultation paper, the FOS said consumers were currently referring more than 5,000 new PPI cases each week, and it expects to receive around 250,000 new cases by the end of the current financial year (2012/2013) – against a planning assumption of 165,000 cases.

These figures are simply staggering, how many are genuine is not certain (given that many claimants have not had any such policy at all) yet Britain’s biggest banks have already set aside over £12bn to compensate customers. Lloyds, who has the most customers of any UK bank, has earmarked £5.3bn for claims.

If Ms Ceeney is correct and only 10% of those ever sold a PPI policy have complained (although the sums and numbers involved are looking high) this is not a miss-selling scandal and it seems a little odd that an organisation so resource stretched should be seen spending time trying to encourage the 90% not apparently concerned, to complain.

Compensating consumers who are genuinely concerned with a demonstrably legitimate grievance is the correct thing to do, seeking out those that really do not care does not.

And that may be why the banks have decided enough is enough?

Segmentation matters. Fewer advisers than expected will only focus on most profitable clients.

Initial results in from our latest RDR survey reveal a lot has changed to adviser business plans in the last 6 months.

Fewer intermediaries now claim they will focus only on their most profitable clients.  At the same time the proportion of IFAs who have segmented their client base, in order to target differentiated services based on affordability, has increased nearly two-fold since November 2012.

Some interesting snippets so far suggest that:

  • 72% have completed or are in the process of segmenting their client base
  • 13% agree they will focus only on their most profitable clients (down from 23%)

For those of you who haven’t already taken part, please complete this important industry survey, in return we will provide you with a digest report of the results, which will let you know how other IFAs are changing their businesses post-RDR.

Please be patient, persevere, the end result will be worthwhile.

Click this link to access the survey.

Your help is both vital and appreciated.