Does Fos stack the deck against advisers?

That adviser interest justifies such continuous coverage is a symptom of the fever the industry is running over regulatory fees.

Between rising fees to fund the Financial Services Authority (and its coming successors), increasing levies to the Financial Services Compensation Scheme to compensate investors following the spate of high-profile firm collapses in recent years, and ad hoc payouts ordered by the Ombudsman, the reguatory cost burden really is putting a squeeze on advice firm margins.

As a case in point, an FSA study produced last year to inform its compensation scheme funding changes found that the post-Retail Distribution Review profit of around 250 advisory firms would be lower than their FSCS levy alone if proposed changes to thresholds went through.

Of course, to the astonishment of no-one and its own eternal shame, the regulator ignored these warnings from its own research and pressed ahead anyway.

With all of these cost pressures, it is perhaps forgivable that advisers have begun to sound more than a little paranoid regarding the agenda of the regulatory and quasi-regulatory bodies that they are so powerless to challenge.

Fos’s mantra seems to be a paraphasing of the old aphorism relating to the acuity of the customer: The adviser is always wrong

In short: many in the sector feel under siege. Consumer redress schemes relating to the shambles that Arch Cru has become demanding up to £140m from advisers and court cases launched against hundreds of advisers over Keydata do little to ameliorate this discontent.

Surely, though, the Ombudsman is impartial. It consider the merits of cases and acts to uphold fairness without any bias or prejudice, doesn’t it?

I’m starting to wonder. A couple of decisions FTAdviser has reported on recently have given me pause for thought and reason to question whether even the Ombudsman is stacking the deck against embattled advisers.

In one case in relation to a Stirling Mortimer offshore property fund, Fos found against the adviser despite raising serious concerns over the fund’s marketing and posulating that the prospectus appeared to be “factually incorrect”.

The reason given for this decision was that the client in question had a cautious attitude to risk. The fund was described as an unregulated collective investment scheme - though Fos said it may in fact be a qualified investor scheme - and was therefore illiquid and “high risk”.

This inconsistency in risk profiling was determined to be the key issue forsaking all others. Decision made; redress ordered.

In principle I can accept that.

However, in another case that FTAdviser reported just yesterday (21 February), a Fos ombudsman overturned an earlier adjudicator decision in favour of an adviser in relation to a Keydata claim.

In this case, the investor was classified as having a ‘balanced/adventurous’ attitude to risk. The adjudicator used the same logic as in the case above and ignored the alleged mis-marketing issues and rejected the complaint on this basis.

But an ombudsman turned this decision around, stated given the “opaque nature” of the investments and the significant uncertainty around accurate valuation and liquidity that a fund would have been unsuitable for all “but the most experienced of retail investors”.

He even went as far as to state the risk profile was wrong, saying the client was 60 and thus would not have been able to take “significant risk” and should thus have been categorised as being “more towards the lower end of balanced”.

Now, is it just me or is the Fos approach conspicuously different in these two cases - with the same end result that the adviser loses out?

The ombudsman in question would probably argue the Keydata decision is still predicated on an assessment of risk capacity versus the reality of the investment’s risk profile. That is true, but only if one accepts its own righteous and retrospective re-assessment of the client’s attitude to risk.

Looking at these two cases - which do not exist in a vacuum and are consistent with others we’ve all seen all too frequently - it seems hard to imagine any adviser ever winning a decision relating to one of these high-profile capstone cases.

Fos’s mantra seems to be a paraphasing of the old aphorism relating to the acuity of the customer: The adviser is always wrong.