The case for a time limit on claims made against financial services firms has been a contentious issue since a previous time-bar was removed when the Financial Services and Markets Act 2000 was implemented.
Without a long-stop in place, many advisers have complained that their legal rights have been compromised amid concerns that they will be handling claims when they are too old to manage them. With claim management companies having been widely criticised for encouraging consumers to complain, several advisers have hit out over the time and stress implications of dealing with questionable claims, and over the difficulties involved in acquiring professional indemnity cover in such an environment.
A former adviser, Tony Mathers, said he left the profession in 2011 because of the stress involved and concluded that without a long-stop advisers had “fewer rights than al-Qaeda”. Mr Mathers said he sold his business due to “serious ill health” caused by a growing “compensation culture”, and recently urged the regulatory body to reinstate the long-stop after receiving “yet another bogus payment protection insurance claim” against him.
He added: “I have had 14 complaints go to the Financial Ombudsman Service. Not one has been successful, but it has taken time and made me poorly. A week or so ago I received a letter trying to hold me responsible for mis-selling PPI in March 1987, which we have never done. We went back to check the files and saw that we did not meet the client who was complaining until 1989.”
We need to write to our MPs to sign a petition and corner the FCAAccording to Mr Mathers, the FCA is in “breach” of the law for not acknowledging Statutory Instrument 2326, which in section 5.2.(c) stated that for complaints about advice prior to December 2001 “an ombudsman is to take into account whether an equivalent complaint would have been so dismissed under the former scheme in question”.
One of his greatest fears, Mr Mathers said, was receiving complaints as a 90-year-old in a care home, which is why he has urged financial advisers to act. He said: “We need to write to our MPs to sign a petition and corner the FCA, as it is so weak and vague. We need pressure in the next few weeks to get this matter put to bed once and for all.”
Phil Castle, managing director of Kent-based Financial Escape, was recently caught out by a complaint regarding his advice but, after a five-year battle with the regulator, managed to get it overturned because of a long-stop contract he had in place. In this contract it stipulated that his firm would “plead a defence of limitation” on any claims made 15 years after the relationship ended, which in the end proved to be sufficient enough.
Mr Castle described this practice as a “logical” approach, and criticised how the FCA’s predecessor, the Financial Services Authority, initially removed the long-stop “without consultation”. Contrary to what the regulatory bodies have so far argued, he said that having a long-stop on professional negligence related to advice was “in the consumer’s best interest”.
He said: “Once the FSA removed it without consultation it refused to have a grown-up discussion on the issue, even going so far as to issue a discussion paper entitled Consumer Rights and Responsibilities, only to state that discussion of the long-stop issue was ‘out of scope’ of the paper. That was when I went off the deep end four or so years ago and said I was going to adjust my contracts to reflect the real world and if the FSA didn’t like it, it knew where I was.”
Most advisers were in agreement about the need for a time limit. Adam Bell, a partner at Hertfordshire-based BPH Wealth Management, said a 15-year long-stop should be put in place officially to make financial advice consistent with other professions, but he questioned Mr Castle’s reference to a 15-year limit as “a negative way to make mention of a blanket rejection”.
Mr Bell said: “IFAs should have the 15-year long-stop. The concept exists for other industries and I have sympathy for those commenting that it may breach their human rights under EU legislation. However, it seems odd to have a client agreement making specific reference to a 15-year time limit.”
Mr Bell was also unsympathetic about Mr Mather’s gripe over keeping old files, and added that complaints were just part of the profession. Of all the complaints his firm had received, he said none had been successful, thanks to paperwork documenting the events that transpired.
But for financial advisers like Alan Moran, director of Birmingham-based Interface Financial Planning, the “draconian” nature of some complaints meant that, regardless of the evidence at hand, they were often very taxing to deal with. Like Mr Mathers, Mr Moran fears being approached as an old man in a care home about a complaint and not being physically well enough to prove his innocence.
The absence of a long-stop, he said, was something that could be expected in North Korea but not in the UK, and was a clear indication that the regulators were “ignoring the law”. He added: “I think any adviser of sound mind feels very strongly about this issue. Why the regulators should be able to get away with ignoring the law and being devoid of common decency at the same time is beyond belief.
“Helping my clients is the reason that I have been a financial adviser for 24 years and if I made an error I would be the first to compensate them. In 24 years I have had virtually no complaints – one went to Fos and its verdict was wrong, so I have experience of how draconian and unreasonable it is.”
Alan Lakey, director of Hertfordshire-based Highclere Financial Services, has campaigned a lot over the past decade for the reintroduction of a long-stop and has recently been behind a campaign group comprising Tenet, Zurich and Apfa to bring the case to the FCA.
Labelling the lack of a long-stop as a “travesty”, Mr Lakey questioned the legality of the status quo and said current rules went against European legislation. He questioned why doctors, builders, politicians and regulators were not being held accountable over the long term, and referred to a ruling in 1979, when parliament settled on 15 years after determining that the memory could become “frayed and uncertain” after that timescale.
In response to allegations against Fos, a spokesman said: “It won’t come as a surprise to readers of Financial Adviser that the 15-year ‘long-stop’ rule is a subject we have addressed many times, both in the media and on our website. While we appreciate how strongly some people feel about this, under the Financial Services and Market Act and the Consumer Credit Act, it does not apply to the ombudsman service.
“Many of the IFAs we speak to are concerned about the impact of the lack of a long-stop on them, though in reality the vast majority of them will never have a complaint referred to the ombudsman. But the fact remains that issue has been addressed by the British and European courts and both have been unequivocal: the long-stop does not apply to the ombudsman, full stop.”
In response to the claim that the FCA was in “breach” of the law for not acknowledging Statutory Instrument 2326, a spokesman for the regulator said: “The provision relates to rules made by the ombudsman.” He added, however, that the FCA would “look into” long-stop this year, in accordance with its 2014/2015 business plan.
Daniel Liberto is features writer of Financial Adviser
Key points
Without a long-stop in place, many advisers have complained that their legal rights have been compromised
The FCA is potentially in “breach” of the law for not acknowledging Statutory Instrument 2326
British and European courts have established that the long-stop does not apply to the ombudsman
