How will a Fos longstop impact adviser complaints?

0:12Hello and welcome to this FTadvisor podcast with me, Alina Khan, senior reporter here at FTadvisor. and I'm joined today by Derek Bradley, Chief Executive of Panacea Advisor and Alan Lakey, Director of High Clear Financial Services. And we're going to talk about the Treasury's plans to introduce a 10-year absolute long stop and why it may be needed. The issue of a long stop preventing complaints from going to the Financial Ombudsman Service after a time period has been a long-running issue for financial advisors. So Alan, I'd love for you to start off by giving us a sort of history timeline of why this has been such an important issue that advisors have been campaigning for for a number of years.

0:52Sure, thank you. Yes, in 1980, the Limitation Act was put in force after much debate. And at that stage, it was decided there had to be a final cutoff, a line drawn to enable firms and to enable consumers to have a balance between the rights of consumers and the, if you like, the rights of firms. Now, this doesn't apply just to financial services. This applies to every business and every individual in the UK. It was decided that there should be a 15-year long stop and the logic behind it was very simple. After 15 years, memories fade, people can't reflect too well, and courts are unable to come to a sensible decision due to the mistiness of the time lapse.

1:43This was further augmented and confirmed by the Latent Damages Act in 1986. Now financial advisors from the start of regulation in April 1988 were, let me explain, there was a number of voluntary ombudsman bodies which were in place and when the PIA took effect in what year was that now I'm trying to remember when it was something like 1994 I believe there was a PIA Ombudsman Bureau and the PIA Ombudsman Bureau was a voluntary bureau but the PIA augmented it with some rules and it accepted the various 15-year long stop and what we call the six and the three-year rule. Just to explain, the rules are very simple.

2:41If after six years you've not made a complaint, then your ability to complain lapses unless you are able to show that within the previous three years you had reason to complain or ought to have had reason to complain, in which case it could be extended. Now, in that period, it could only be extended up to the 15-year period. Now, come 1999 and 2000, the new Ombudsman Service was being debated by Parliament, and Patricia Hewitt, who was the Economic Secretary, promised that there would be checks and balances on its power. and at no point was the long stop mentioned let alone the removal of it discussed debated voted on or in any way mentioned and you can look through the hands out and you can see this you can look through the committee minutes and you can see it simply was never mentioned however to advisors dismay come december 2001 when the fsa came into force and fos came into force they found out that the rules of the ombudsman, the dispute resolution rules, showed that there was no long stop.

4:02And these rules were written by the FSA. Now, of course, the argument that people have put forward over the years, me being one of them, is that just because it doesn't say that there's a 15 year long stop doesn't mean that they can override statute. And David Kenmere, former managing director at the FSA, actually wrote a letter confirming that the FSA cannot override statute. But in effect, this is what they've done. So I'll stop there. Otherwise, I'll talk forever. And Derek, obviously, during your career, you've come across many cases of where, you know, the advice was probably given more than 15 years ago.

4:48And yet, you know, these cases, claims have been upheld and advisers are sort of being having to sort of fight this battle of trying to defend themselves, really. So I'd love to hear of sort of some of the cases you've heard of over the years and why, you know, it's still such an important topic now. Well, it's interesting when Alan made that sort of great phrase that I think is very much attributed to the late Queen about recollections may vary. And I think that's the problem when such a period of time elapses. and unfortunately and from certainly cases i've seen and in particular some complaints i've seen over the years there is a tendency to make a complaint um because your circumstances have changed your you know your financial position may be worse um uh at the that and it just suits what suited you then doesn't suit you now.

5:58And I think it was Mark Garnier, MP, still an MP, who did an event for us shortly after he got elected. And one of his concerns was that the financial services industry was almost seen as a compensatory milking cow. And certainly, you know, I have seen complaints, I'm sure Alan has, and bearing in mind that I haven't been an advisor for about 20 years now. And I suppose the last complaint I probably saw was about 15 years ago. But when you look at the complaint, your jaw drops, frankly, on it. And thankfully, none sort of came in my direction. But I think there are aspects to this, particularly with regards to the liability from the long stop and the differences between limited company and sole trader.

7:00And I think that the examples that we are seeing now are very much those who are sole traders. And I think Alan alluded to the fact that if he wasn't around, then his wife could be consumed. And I think also recent examples of claims management companies now getting involved in these sort of complaints, which Alan and I have got long history in terms of at least seeing them regulated, which they weren't. And that, you know, it's very much down to the hard work of Alan and myself and the Ministry of Justice. You know, things will only get worse. and I can think of one quite well-known industry guy many many many years ago and I know that this is network related but actually if you consider that with networks they're very much considered to be a sort of a shield a coat of armor to protect you there's a very well-known guy called Ivan Massow and Ivan I can't remember the network he worked for But he got, I think, almost bankrupted off the back of this because his client base was pink pound clients.

8:24This was in the era of endowment policies, endowment policy misselling. And if you happen to be in the perceived high risk group of individuals, the only way you could get insurance without answering very many questions or have tests was on a simplified acceptance. And the network he worked for decided they were going to pay out on all these things without any reference to him. So then do you believe that the Treasury are obviously looking to introduce a 10-year long stop? Do you believe that is a sound sort of number? Do you think 10 years is good? Or did you sort of have a different sort of approach in mind, I suppose, in how to implement a sort of a more effective long stop?

9:09as clearly this one hasn't really seemed to be that effective, given how many people have fallen outside that 15-year and still are having cases upheld against them. Yes, I mean, 10 years would be very welcome. In fact, 15 years would be welcome because it aligns with the law, and that seems reasonable. The problem is when you look at the consultation, you see that the Treasury, who have kick-started this, have said it doesn't apply to long-term products. so it will not apply to pensions it won't apply to investments and it won't apply to protection plans or mortgages in other words pretty much nothing so really for advisors nothing changes really in that sense no what we've had over the years and this is a common theme with regulators you have a consultation where they say what do you think of this and advisors say we don't like this we don't like that and then the regulator says well we're going to do it anyway so the consultation is a sham and a good example of this is back in 2003 from memory the regulator under john tyner said that they would look into the restoration of the long stop they asked for opinion and 82 percent of respondents said yes we'd like it back and then they said nah now we'll leave it as it is thank you a pointless waste of everyone's time but it's done to appear to be taking account of views of advisors and the reality is it's not it's a sham purely for political purposes so then i suppose as as um you obviously alluded to you know your your wife could be on the hook for for sort of this for the next 10 or however many years and at a time when the industry is already struggling to get new advisors to come in And this almost seems like a direct deterrent because even if you're part of a network, as Derek alluded to, you still aren't safe from having someone come after you basically after you've retired.

11:14So, you know, where do we go from here, really, if, as you say, the consultation perhaps isn't actually solving anything in reality? What does that really mean? the real um uh victims the ones on the receiving end of this at the moment are those who are really least well resourced least able to uh perhaps readily uh recollect um and in many cases seriously ill and uh i i think certainly that uh it wouldn't be unfair to say that I think over the years there have been some examples of almost deathbed scavenging on people just to sort of get to the bottom of this. And I also think as well that we have seen, I've certainly seen over the last couple of years, and I can't seem to get an answer to it despite numerous requests, that it is certainly the case that there are discretionary payments made by the ombudsman when there's no rhyme or reason you know if you have a rule and I think this particularly is applied to product providers rather than advisors but the six plus three and whatever these discretionary cases appear to have been well outside of that that the ombudsman has ordered that they can make a discretionary award.

12:51And I think it's also the case that from an industry perspective, and it's easier for me to look at it, because I'm not actually an advisor anymore, that this is an industry where advisors do their job, but they're very much a distribution channel for financial services products to address the various concerns that their clients have. And I think they probably don't appreciate as much as they should the impact that this has on a distribution channel. And when you're talking about encouraging new people to come into financial services on that, I think maybe if there's been more noise created over the years, and particularly with regards to Alan's efforts on, for example, miners and others, these firms carry an enormous amount of weight.

13:56and I think to protect the people that you rely on to get your flows of funds and other stuff through, I think it would be nice that they could maybe stand up a bit more strongly to them because it would be very well received. So I suppose my last question is, if an advisor, say for example, were to one day have someone contact them their former network their former firm and say you know we've upheld a complaint we want to recoup the money from you or anything in that in that sense or if they've had a case upheld from the FOS that's over the 15 years what should they what should they do what sort of advice can you give them because it's obviously as you said Eric a lot of them have been retired for a long time possibly maybe ill you know as alan was saying you know they're worried about what it the effects could be on their families after they're gone so it's a very sort of highly emotional and stressful thing to deal with so in those instances what should they do i'll start with you alan well firstly most advisors don't get complaints so when a complaint comes through they are completely confused as to how to deal with it they don't know they they use logic which doesn't work in financial services so they they become undone by circumstance and also by the fact that they're fighting uphill because um just uh going going off a quick tangent back in 2003 the chief ombudsman water merix stated at a meeting that he didn't think that today, obviously 2003, Parliament would have allowed the Ombudsman Service, the vista of options that it has, because he said it was like one side playing uphill, which of course is a fair description of how it works.

16:06If you are in a network, then you need to read the network's rule book and see what you've signed up for. Most people don't do that when they join, to be honest, because they trust that everything will be fine. I was in a network and I read their rule book and there was 45 rules and there was a 46 which said we can change any of the 45 whenever we want, making it a somewhat pointless exercise. The truth of the matter is that if you've gone through a process of reaching a decision, giving advice, which is then ratified by the network, then the network must therefore take responsibility because they've given the thumbs up to that piece of advice.

16:54If a network says, well, we want it both ways, we want your money, we'll take the 15 % or whatever we take, and the onus is now on you, then that, of course, is unfair in law. And I would imagine that any advisor who is of the notion that he wants to fight back, if he should take it to court, he would win because it's an unfair practice. and I think from some examples that certainly Alan and I have been aware of over the last last couple of weeks and you know very specifically not naming names it has been quite extraordinary to see how one advisor's experience of complaints supposedly being being dealt with and compensation paid has exposed the fact that the protection that the individual was supposed to get from the network wasn't there because they hadn't followed the regulator's own rules in regards to dealing with a complaint, rejecting a complaint, appealing a complaint.

18:05and uh you know i'm sure uh that will sort of reach a uh hopefully a very positive conclusion going forward but i don't think one should accept um uh claims for address without actually getting a lot of details on it and unfortunately you know it's going to cost legal fees uh as well and while you're in business um at least you can uh offset some of that because you can affect legal insurance which you know can be fairly wide-ranging uh on that and if you weren't within the network um that uh and i know certainly when i was not ifa we had legal insurance linked to our compliance um uh uh company uh but that doesn't help you when you retired or in your hospital bed.

19:01And as I said earlier on in this conversation, when you've got claims management companies now on a feeding frenzy, irrespective as to whether they're sort of regulated by the Law Society or the FCA, and again, this case that dare not mention its name at this particular moment in time, that was generated from a claims management company it would now appear should not have been doing what they're doing to the extent that the regulators now are looking at them. But they should never, ever have been allowed to do that. Great. Well, thank you both so much for joining me today. I can go to a dark room now, Lena, as it's a sort of recover for the recollections and reminiscing.

19:54And hopefully people will derive some insights into what a dangerous life it is being a financial advisor. Yes. Well, thank you both very much. Thank you very much for listening to this FT Advisor podcast. And please visit our website, ftadvisor.com, to get all your latest insights on investments, pensions, mortgages and more.

20:24Thank you.