Fos case fee allowance treats networks as single firms
New case fee allowances from the Financial Ombudsman giving firms 25 fee-free cases per year will apply to networks as though they are single firms, regardless of size.
Earlier today the Fos revealed its intention to increase the fee-free case allowance from three to 25, but stopped short of imposing a fee on complaints management companies.
After 25 complaints, firms will have to pay a £500 fee regardless of whether the complaint is upheld or not.
However, a Fos spokesperson confirmed to FTAdviser that networks would be counted as single firms, and would therefore divide the 25 among their respective members as needed.
Whether the network would pay further complaints from membership fee pool or require firms to pay their respective fees individually will be determined in the network contract.
According to Derek Bradley, founder and chief executive officer of research company PanaceaIFA, said: “Networks are treated the same but differently. How? Well, the free case count is applying to the network, not the individual member so the increase from three to 25 free cases really will mean nothing to network members as these are spread.”
For example, the Fos revealed that networks Sesame and Openwork handled 216 and 173 respective complaints in 2011.
However, Openwork proposition and marketing director Philip Martin said the move will have minimal impact on business.
Mr Martin said: “We wholeheartedly support better regulation of the claims management sector, which has been responsible for the majority of the increase in complaints activity over the last couple of years.”
Mr Bradley continued: “If we saw the free case count applied to each individual adviser in a firm, which may be a fairer way of doing it - especially for network firms, the outcome would no doubt mean case fees for all increasing significantly to defray the loss of revenue to the FOS.
Although he welcomes the announcement, Mr Bradley argues it is a case of “giving with one hand and taking back with the other”.
He added: “It would be interesting to know the maths on this. On a like for like basis would the new proposals generate more revenue for the FOS when compared to the current structure?
“If the answer is yes, and I have no way of knowing, this would suggest an application of cynical, complicated algorithm to see a positive revenue outcome for the FOS.”
Yesterday, Defaqto’s insight analyst for funds Fraser Donaldson said processing times for new clients are a mounting priority for advisers as they try to put more clients into networks in the approach of the Retail Distribution Review.
According to the Ombudsman’s recent consultation paper, under the new system only roughly 1 per cent of small users would pay case fees.