4 February 2010

Money Marketing

by Nicole Blackmore

The Financial Ombudsman Service complaint form no longer asks consumers when they first became aware of a problem, raising fears that advisers could be hit with charges for cases falling outside FOS jurisdiction.

The ombudsman cannot consider a complaint if the complainant takes it to the FOS more than three years after they became aware, or could reasonably have been expected to be aware, of a problem.

Collegiate Claims legal director Martin Archer says: “Sensibly, the old complaint form required the claimant to provide three key dates to enable the FOS to assess whether the complaint fell within its jurisdiction, namely the date of the transaction, when they first realised there may be a problem and when they first complained.

“However, the new complaint form inexplicably no longer asks the claimant to confirm when they first realised there might be a problem. The ombudsman will no longer be alerted to whether the complaint potentially falls outside its jurisdiction under the three-year rule.

“The cynics among us will therefore conclude the ombudsman wishes to adopt a ’Nelsonian blind eye’ to the limitation issues and is trying to investigate claims that it otherwise, upon proper enquiry, would have no jurisdiction over.”

An FOS spokesman says: “It was found that consumers were misunderstanding this question and routinely were putting inaccurate information in the box. Often the financial businesses involved had more accurate records of when a consumer had first become aware of their right to complain.

“We can confirm that nothing has changed in terms of the ombudsman process or the time limits that apply to the ombudsman’s consideration of complaints. Where it is clear that a consumer is out of time to bring a complaint to the ombudsman service, the firm involved will not be charged a case fee.”

Money Marketing

28 January 2010

Nicole Blackmore

Advisers who sit written QCF level four exams may get more favourable professional indemnity insurance terms to those who sit alternative assessments, according to PYV.

Managing director Neil Pointon says if written exams are perceived to be more thorough, underwriters may offer better terms to those advisers.

He says: “If there is an argument that written qualifications are a better route to higher qualifications, then underwriters will look to reflect that.”

Pointon adds that advisers who achieve QCF level four through alternative assessments will still receive better terms than they do currently.

He says: “I do not think underwriters will penalise advisers for taking the alternative assessment route because it is still an improvement on the current minimum qualification. But if an adviser has the full written qualification, I am sure that the broker would represent that to underwriters to get better terms.”

Collegiate Management Services head of underwriting Richard Turnbull agrees that advisers with written exams might receive more favourable terms if it is considered the superior route to QCF level four. He says: “It is fair to say that if a particular method of assessment is considered better, that will be reflected in the rates offered to advisers.”

Evolve Financial Planning director Jason Witcombe says: “I think that is fair, it might be an incentive for advisers to get QCF level four via written exams if they want lower PII costs. Firms will have to weigh up whether those savings are of substantial benefit.”

Highclere Financial Services partner Alan Lakey says: “I would not have thought alternative assessments would be a weaker option. In some cases, it may be a more subjective assessment than written exams.”

IFAonline

Author: Scott Sinclair

A forecasted 50% hike in the cost of professional indemnity insurance (PII) is yet to filter through to the industry but will do so during 2010, a leading underwriter says.

London-based insurer Collegiate last year warned of a significant increase in PII costs for financial advisers as a result of increased claims brought about by heavy drops in investment returns.

Although it is yet to see significant price shifts across the industry, it expects that to change during the next year.

Claims have been through the roof, as you would expect really with investment returns down 40%," underwriting director Richard Turnbull says. "But I don't think it has really filtered through yet."

"We said there would be a 50% increase in PII costs and I still think that will be the case."

"The perception of an IFA's advice is very clearly linked to the investment return and, although there has been a mini rally, we are still 30% down on 2007."

Turnbull says he expects the financial sector to see "another Lehman Brothers-type collapse" in 2010, potentially bringing with it a flood of new claims against advisers.

But he is unsure whether advisers have yet to adopt what he calls "better defences" to protect themselves against client complaints and claims. "We'll know more in a year," he says.

Last August Collegiate, which has both underwriting and claims arms and says it insures more than 15% of the UK IFA population, said the number of claims it processed had doubled in the previous 18 months.

It also criticised some PI insurers, as well as trade associations and compliance providers, for being unclear about which exclusions some policies feature and "emphasising price above coverage".

But Turnbull says he has not noticed any major activity on the exclusions front, adding: "Insurers can have whatever exclusions they want".

Nicole Blackmore

Money Marketing

Professional indemnity insurance specialists have warned IFAs to speak to their PI brokers before sending block notifications to their insurers.

Block notifications involve advisers sending a list of clients who may be affected by particular circumstances to their insurer before complaints arise.

Law firm Regulatory Legal partner Gareth Fatchett, who is offering a block notification service to IFAs, says where situations arise, such as the collapse of Lehman, advisers are obliged to notify their insurer of any clients they have in Lehman-backed structured products.

Fatchett says: “This is not discretionary, IFAs must block-notify their insurer of any circumstance that may lead to complaints, otherwise claims that arise will not be covered by their insurance.”

But Collegiate underwriting director Richard Turnbull says he has seen a marked increase in claim management and legal firms contacting IFAs about block notifications in the past few weeks and warns IFAs should not contact their insurer before speaking to their PI broker. He says:

Rather than pay a lawyer for advice over block notifications, take advice from an insurance professional. If you don’t, you could jeopardise your cover.”

PYV managing director Neil Pointon says: “IFAs should first speak to their broker about any problems so they do not jeopardise their policy or renewal at a later date.”

Mark Gibbon

Managaing Director, Collegiate Group

The recent FSA guidance raises some potentially far reaching issues for the IFA industry. Clearly there will be a debate on the reasonableness of the FSA producing this detailed guidance as to what the appropriate standards are that the profession ought to have applied. Surely there should have been proper consultation with the profession as to what the relevant professional standards actually were at the time. What is, however, clear is that the FSA have now set down a marker for advisers as to what they consider the standards are going forward and this is an area that the profession needs to look at very closely and see its relevance beyond structured products.

Where capacity for loss is being reviewed then the FSA have said they will assume that where less than 10% of the portfolio is invested in the product they assume the investment is within the customer’s capacity for loss. If more is invested then the situation needs to be considered more carefully as to whether the proportion invested was reasonable or a reasonable justification has been made.

On the face of it the concentration argument is not limited to structured investments but applies to all products. Given the failure of Lehmans was very unlikely before the credit crunch how many other product/product providers are vulnerable to very unlikely events. It is hard to think of any product that does not have some vulnerability to a very unlikely event.

The Industry needs to have an urgent debate to determine if it is to accept that you need a good reason to invest more than 10% in one product unless a ‘good reason’ includes the cost/hassle of diversification is not appropriate to avoid the very low risk of a catastrophic event.

It is worth noting that the FSA have said that where the structured product is purchased in the customer’s name only, the value of jointly held investments should be halved and that the value of pension policies should not be included unless the investment is in the pension policy. These are both issues that should be included in any industry wide debate on the guidance issue by the FSA.