Quality Over Quantity (or not) – New FOS “Abridged” Adjudications?

When the PIA Ombudsman service was transformed into the Financial Ombudsman Service (“FOS”) in 2001, it had the authority to make financial awards of ￡100,000 and its remit was to resolve simple disputes in a timely and cost-efficient manner.?While it is possible to see the value of the ‘rough justice’ that they hand out for certain types of dispute, a number of developments over the last few years have left many in the advice sector (and their insurers) questioning whether the FOS’s “one size fits all” approach is still fit for purpose. In the article, we review some of the more recent developments within the FOS and consider the challenges facing the service.

The Status Quo

There are clear advantages for both businesses and consumers in having the FOS available, especially for certain types of businesses or products. The FOS’s ability to make decisions without the need for litigation provides a clear benefit to consumers, who receive a free and independent review of their concerns in a reasonably timely fashion. There are also arguably benefits to defendant businesses, in the form of independent reviews into their own business and complaints handling practices and the fact that the FOS discourages people from utilizing “no win, no fee” solicitors to pursue relatively low-value complaints via the courts.

These “merits” can most clearly be seen in relation to complaints around simple products, including ‘current accounts’, consumer insurance disputes and customer service issues. These complaints appear to be what the FOS is best suited to investigate and make up a large proportion of the total complaints reviewed by the FOS.

In their annual complaints insight report for the 2020/21 period, the FOS confirm that over 256,000 of the 278,033 complaints received related to banking, insurance or payment protection insurance. Only 7% (20,854) of the complaints received in the 2020/21 period related to investment or pension business and, of those 20,854 around 8,500 appear to be customer service complaints or poor administration complaints. This would suggest that well under 5% of the FOS’s workload is looking at complaints concerning complex financial advice.

That said, it is becoming more challenging to see the value to businesses of the FOS deciding complaints concerning more complex financial advice. This type of complaint often involves advice that was given by a highly qualified advisor over a number of months, after a detailed fact-finding process.

Many financial advisors and their insurers have long had concerns about the ability of relatively unqualified “investigators” and Ombudsmen/women to make decisions on complex pieces of financial advice after a review of the “paper file” only. The recent rise in complaints relating to advice on “defined benefit pension transfers” has also highlighted the FOS’s reluctance to believe contemporaneous written evidence or give any weight to it in coming to their decision.?Often they will prefer a consumer’s recollections of the advice process and their requirements, rather than the file documents.?This is especially concerning when considering that these types of complaints will often involve representatives acting for the claimant who are taking a cut of any damages.?While it is not being suggested that these companies are telling the clients what to say, they will clearly know how FOS will look at these claims and can ask the right questions to the claimant and tailor any responses to make sure that FOS are given the ammunition they need.??

These concerns are only heightened by the FCA’s decision to increase the amount of damages the FOS can award to ￡375,000 for new complaints about advice given after 1 April 2019. This award limit is also revised upwards annually in line with CPI, meaning that by 2023 the amount FOS can award for post-2019 advice will likely exceed ￡400,000. ?No doubt this will cause pound signs to appear in the eyes of the army of Claims Management Firms (“CMCs”) and claimant lawyers that have appeared in the last decade.

All this must be taken in the context that FOS will only ever have limited resources.??They received 271,468 complaints in 2019/20 and 287,033 complaints in 2020/21. This steady increase in complaint referrals has seen wait times for decisions begin to lengthen, especially for a decision by a more experienced Ombudsman on complex matters.

The pressure the FOS is under is clearly demonstrated by the influx of referrals made concerning advice to transfer out of the British Steel Pension Scheme. This type of defined benefit pension advice must be classed as some of the most complex that can be given, with financial advisers requiring special qualifications to undertake the advice. That said, we have heard many reports of FOS decisions utilizing templates, with stock paragraphs regularly used and, sometimes, “[insert name here]” blanks being left in issued decisions.

The ’Abridged’ Adjudication

It is, clear that the FOS is a service under severe pressure and, somewhat, out of its depth.

This pressure may be a driving factor behind the recent rise of what we are calling “abridged” adjudications being issued by the FOS. These are short, one-page documents that consist of only three small text boxes, entitled:

·??????The Complaint

·??????The Outcome, and

·??????Key Points

We have included a redacted image of the new decision template in this post (see figure below).

The latter two boxes, which contain the FOS’s findings and limited rationale, included less than 300 words. This must be compared to ‘standard’ adjudications, which can run from 3 to 10 pages. While this time-saving format may be appropriate for some types of complaints, we have seen these forms used recently in matters with alleged losses of ￡400,000+ involving complex tax planning or pension transfer advice.

It is difficult to see how a 300-word decision strikes the right balance between access to justice and fairness to the adviser, particularly when these decisions can be accompanied by an award of over ￡300,000. Indeed, this type of decision contains such a brief rationale that it is difficult to see how either party could take much comfort from it.?Further, where there is such a brief analysis of the merits of the claim and the reasoning behind the decision, it is much more difficult to effectively challenge the outcome.?Without a full rationale of how an adjudicator came to their outcome, it is hard to critically assess their decision-making process and fully respond to it.

What next

It is certainly not being suggested that FOS do not provide valuable service in relation to resolving certain types of dispute. That said, the impact of the FOS’s increased award limit on financial advisory businesses cannot be underestimated, particularly in view of the recent increase in the amount of redress that can be awarded. ?

This position is only made worse if the ‘new normal' becomes a 300-word decision, leaving the advisory firm struggling to understand or challenge the rationale for any decision.

It is often said that it is easier to destroy than create. Therefore, what alternatives are there?

One such idea might be a special department at the FOS which investigates high-value and high-complexity claims. While this idea may require additional ‘budget’ at the FOS, this needs to be considered in the context that well under 5% of the FOS’s referrals comprise complaints concerning the suitability of pension and investment business. Such a model, moving away from a ‘one size fits all' approach, may currently be being considered at the FOS. In a recent Money Marketing article, the outgoing Interim Chief Ombudsman of the FOS, Nausicaa Delfas, suggested that the FOS is looking at different charging structures for different types of complaints. The question may then be, would advisors be content to pay more for a more tailored service?

Another option may be increased use of the ‘oral hearing’ by the FOS. While these are currently used very sparingly by the FOS, they do have the power to conduct face-to-face or video interview sessions with disputing parties. Collegiate has only seen this used three times in the last fifteen years, and even then it was only used for settling disputes of fact on points where no documentary evidence existed.?This could be especially useful for defendant firms where the FOS seems reluctant to give any weight to the contemporaneous paper file, as it may be harder to shy away from the realities of the claimant’s decision process at the time if this is dealt with in person.

A third option may be for greater collaboration between the advisory community and the FOS. It is often felt by advisers that the FOS lacks knowledge of the actual process of giving financial advice and the “personal” side of the process. While this sentiment can be reminiscent of football commentators discrediting referees who “haven’t played the game at this level”, having more current or ex-advisers working in or with the FOS would surely improve understanding and outcomes all around.

The problem of how to improve the FOS will always divide opinions and there does not appear to be any easy answer to hand. However, while it can be argued either way whether quality trumps quantity, a lack of both is in no one’s interest.

Written By Alex Barry, Claims Director, Collegiate Management Services.

Resources

[1] https://www.financial-ombudsman.org.uk/data-insight/annual-complaints-data/annual-complaints-data-2020-21

[2]Money Marketing Meetings Nausicaa (November 2022 Issue) Delfashttps://digital.emap.com/41372/81928/index.htmleea=MnhDbEdPUFJWNGdhb3BRcGo1UW55S2M1d2xLb0puYm5GTEptMWJkN0N3VUpOQUxza054d3JvN0VWOXM4ajVUSA%3D%3D&utm_source=acs&utm_medium=email&utm_campaign=INDIGO_MM_MAR_%7CMM%20_Nov22%7C%20%20Digital%20edition&deliveryName=DM92259