The flaws that hinder naming and shaming firms which dissatisify consumers may soon be resolved. Kuba Shand-Baptiste looks at the changes in store.
Financial services complaints data has long had a familiar look to it. Biannual lists, released by the Fos and the FCA, rank the likes of Sesame, St James’s Place and Hargreaves Lansdown at the forefront. These firms’ prominence is as a result of their scale: the bigger a firm is, the more likely it will receive more complaints. But that may be about to change.
As of February 2017, the FCA’s complaints will require firms to submit information about the size of their business – previously a voluntary condition – as part of the regulator’s attempts to make complaints volumes more easily comparable.
The Fos also appears to be bending towards including complaints per 1,000 customers in future data reports.
“We believe that applying a similar measure to our complaints data would add context and allow for meaningful comparisons between firms”, a Fos spokesperson told Money Management.
“It may also act as an incentive for firms to improve their complaint handling so that fewer are referred to us. We’re consulting on this, and have asked for interested parties to tell us how they think we might overcome these practical considerations.”
As it stands, the Fos deals with complaints from consumers after they informed the business about their issue and failed to receive a resolution within eight weeks (as set by the FCA as part of its dispute resolution rules). Following this, the body corresponds with both parties and “weighs up all the evidence from both sides to decide what is a fair and reasonable outcome in all of the circumstances”, according to the spokesperson, before issuing a final and legally binding summation.
Conversely, FCA complaints that are reported by financial firms do not include details of individual cases. For now, the data may prove more useful in assessing what types of product are causing consumers the most concern.
Recent figures from the Fos and the FCA show cases pertaining to decumulation, life and pensions and investments as among those receiving the most complaints.
Payment protection insurance
Unsurprisingly, it was payment protection insurance (PPI) that topped both lists on a product basis, with 927,631 cases opened between January and June 2016 under the FCA, and 53,045 opened by the FOS between April and June.
An issue for the banking industry, mis-sold PPI, has cost the sector £25bn in compensation payouts since 2011. And that number is expected to rise as more customers come forward before the FCA’s proposed 2019 deadline for claims is imposed.
While many welcome the FCA’s PPI claims window, which will run from June 2017 to June 2019, Nick Baxter, chairman of the Professional Financial Claims Association (PFCA), believes it risks suggesting that the issue has been satisfactorily dealt with.
Mr Baxter explains: “£25bn has been paid out, but that includes statutory interest, which represents about half of the payout, so in terms of premiums actually repaid, it’s only about £12.5bn. No one knows exactly how much PPI was mis-sold, but it’s around £40bn, and if we’ve only paid £12.5bn of it, so we’re nowhere near the end.”
However, on an annual basis the percentage of PPI claims that are upheld does seem to be falling, down almost 20 percentage points from 76 per cent of claims upheld between January and June 2015 to 57 per cent between January and June this year.
Stocks and shares Isas
Investment Isa complaints have also been highlighted as a cause for concern. Following a freedom of information request by robo-adviser MoneyFarm, the Fos revealed that there was a 166 per cent increase in the number of such complaints over the past year.
Customer complaints were centred on poor and exaggerated advice surrounding risk and expected returns, with risk-based complaints up by 67 per cent between 2014 to 2015.
Giovanni Daprà, co-founder of MoneyFarm, suggests that “the creation of advice gaps may have played a role” in exacerbating the issue, as well as a lack of understanding when it comes to investors’ risk profiles. Suggesting that advisers need to make efforts to diversify, Mr Daprà continues: “Professionals need to realise that they need to do their homework and have a team that’s constantly overseeing the investor’s portfolio.
“Some companies don’t have the resources to do that properly, particularly when the market goes up and down so fast it can make finding solutions difficult. That’s where technology would help to bridge the gap. Automated solutions can really provide [well-rounded] advice.”
Pension freedoms
More pleasingly, pension product complaints have largely been on the decline since the introduction of pension freedoms in 2015, with the FCA’s most recent report showing that complaints were down 10 per cent on last year.
Andrew Pennie, marketing director and head of pathways, Intelligent Pensions, believes “the main driver of complaints going down” can be attributed to “companies becoming better equipped to deal with [pension freedoms]”.
Mr Pennie continues: “A lot of companies were bombarded with requests, so they had these volumes of [complaints] that they couldn’t really plan for because they knew it was going to be a temporary blip.”
But with the Trades Union Congress (TUC) warning that more than 300,000 savers have withdrawn money from pension pots without seeking advice, complaints remain a hot topic.
Mr Pennie suggests that while time may have helped to speed up the process of dealing with pension freedom-related complaints, problems associated with the sector continue to persist.
“It’s worrying because before pension freedoms, people were buying the wrong annuities, and [over a year later] we’re still seeing people buy the wrong annuities,” he says, highlighting the fact that while “companies are better equipped” to deal with issues like transfer delays, education is still required among savers.
“The difference between the best and worst deal can be significant, so not having an understanding of what it is you have or what [you are] actually giving up is huge,” Mr Pennie continues.
“I think we are storing up a glut of complaints for the future. I don’t know where these people are going to complain to, but eventually a lot of these people who are now accessing their pensions early are going to run out of money.”
While the government, which recently announced plans to merge the Money Advice Service (MAS), the Pensions Advisory Service (TPAS) and Pension Wise into one centralised guidance body, has reiterated that guidance can help to resolve these issues, it is clear that few have opted to use it so far.
Mr Pennie adds: “In the first quarter of this year 3,379 people cashed in 10 per cent of their pension pots. Think about how much tax these people are paying.”
“We keep providing more guidance, [but it is] of limited use for a lot of people because guidance just tells you the options that you have. What it can’t tell you is whether [withdrawing] is the right thing for you to do given your set of circumstances.”
