Today (15 July) the Financial Ombudsman Service published 1,253 final rulings that have been handed down since April 2013 as its decision webpage finally went live. Here, FTAdviser analyses the first wave of rulings to see what we can glean about the ombudsman’s operations.
If you’re subject to a Keydata complaint, you’re screwed
It may come as a small surprise, but of three complaints published against advisers relating to Keydata, all three of them were upheld, perhaps confirming the consensus view that advisers subject to a Keydata complaint are doomed to fail.
This includes one complaint against a recommendation by AWD Chase de Vere, a company which recently reported a drop in profits reflecting mounting legal costs in the company’s battle over who will pay recompense for Keydata.
Not only that, but in each case the Ombudsman derided the adviser specifically, saying they had lapsed in their duties. Mis-selling investments based on a faulty assessment of client risk was a major theme in the Keydata cases.
In one decision the Ombudsman said: “If the IFA had carefully considered the product literature (as it should have done) it would have realised that the bond was not suitable for cautious to moderate investors...”
In another, “I do not… believe it is unreasonable to hold the IFA responsible for any losses incurred as a result of being in that investment – whether or not it subsequently turns out to have been the subject of misappropriation.
“The IFA had a responsibility to ensure any advice provided was suitable and, by failing to do so, I consider he acted with complete disregard for [client] interests.”
In a third decision, the Ombudsman said: “Rather than simply relying on the headline description of the investment, I said the IFA should be exercising professional judgement about its inherent nature to assess its suitability for their needs.”
Perhaps more surprisingly, a search for Arch Cru on the Fos’ decisions website yielded not a single result.
A game of risk
As with the three Keydata cases, a straw poll of pensions and investments complaints which included the term “advice” (yielding 57 results) revealed misconstrued risk assessment is often cited as a repeated reason for finding against intermediaries by the Ombudsman.
FTAdviser has previously questioned the objectivity of the Ombudsman in reaching its decisions, finding against advisers even where the product marketing information may actually have been factually incorrect.
It has often been a bone of contention that the Fos can retrospectively decide whether a client had a suitable risk profile for a client, especially when it has even ruled against advisers that conducted full fact finds and recommended higher risk investments for ‘adventurous’ clients.
In one particular case, the Ombudsman found against Openwork for failing to conduct a proper risk assessment even after an adjudicator had previously sided with the advice firm.
FSA didn’t even know investment wasn’t authorised
The now defunct Financial Services Authority did not have a clue as to whether Luxemburg-based Arm Asset Backed Securities needed authorisation, according to another decison.
There have been three published decisions into Arm Asset Backed Securities since 1 April 2013, with two relating to complaints from investors who complained that Standard Life did not conduct proper due diligence and also that the Sipp operator should have rejected the investment as it was not authorised by the Luxembourg regulator.
Neither complaint was upheld but, revealingly, ombudsman Adrian Hudson pointed out that the FSA did not know whether Arm actually needed to be authorised. The FSA became aware in July 2009 that ARM wasn’t authorised by its home regulator to issue the bonds.
The decision also reveals that while the Commission de Surveillance du Secteur Financier was assessing ARM’s authorisation application, Arm’s primary UK distributor Catalyst continued to process new applications and continued to collect money from new investors, despite the CSSF telling it not to.
When the FSA found out what Catalyst was doing, it issued a supervisory notice on 17 August 2010 which prohibited Catalyst from selling any more Arm bonds or collecting any new money from investors, but this was not made public. The FSA being secretive? Can you imagine?
In fact, the FSA prohibited Catalyst from publishing it. The FSA did not make this public until September 2011.
In its defence, the FSA said that it did not publish this because, in its opinion, it would have caused a run on ARM with a large number of investors looking to withdraw their money. A run would have reduced the value of the bonds and investor returns, the FSA added.
The big boys
Fos data revealed earlier this year that it received 283,651 new complaints in the second half of 2012, of which 211,885 were attributable to payment protection insurance. Fos’s final decisions back this up, with there being 274 complaints published final decisions about PPI since 1 April 2013.
In March, the Fos data also revealed that major banking groups dominated the list of most complained about firms, with Lloyds Banking Group, Barclays, The Royal Bank of Scotland and HSBC collectively accounting for over 60 per cent of total complaints in the second half of 2012.
Of the big banking groups, RBS was the subject of the most final rulings, with 588 published final decisions, followed by Lloyds Banking Group with 150 complaints, Barclays with 121 published final decisions, and HSBC with only 79 published complaints.
I can’t say I am surprised by these figures as the bigger firms will always receive the most complaints. When I typed IFA into the search bar, there were only seven published complaints, however the term ‘financial adviser’ brought up 863 published decisions, with many involving PPI and mis-sold mortgages.
