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Time for change at the ombudsman

  • To gain an understanding of how the FOS is being reformed
  • Grasp how the reforms could affect advisers
  • Learn about the challenges facing the organisation .
Time for change at the ombudsman

‘‘If something’s gone wrong, we have the power to put it right,” the Financial Ombudsman Service (Fos) writes on the homepage of its website. The irony of this statement is that things have been going wrong at the Fos itself.

An undercover investigation broadcast earlier this year by Channel 4’s Dispatches exposed a number of failings within the organisation, primarily stemming from the fact that many staff were severely under-trained, after several years of soaring demand for its services.

“Staff with inadequate training or understanding of financial products are judging cases, with some having reached decisions in favour of the banks without properly reading case files,” the investigation alleged, a claim that suggested there could be thousands of decisions that need to be re-examined.

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The fallout from the investigation was both damning and wide-reaching. Former pensions minister Ros Altmann urged the government to take action and have the ombudsman’s management team respond to the allegations. 

Some organisations, such as the Personal Investment Management and Financial Advice Association (Pimfa), the intermediary trade body, have called for cases with questionable outcomes to be reopened and re-examined.

An independent review commissioned in light of the programme defended the Fos in many areas and said it was not “institutionally biased” against consumers.

But the review, conducted by Richard Lloyd, a former executive director at Which?, did make a total of 22 recommendations to address issues that it said often stemmed from overwork. A Fos spokesman says its board has agreed to these. Some of the suggestions are relatively broad, so more specific measures could yet emerge.

Recommendations include strengthening training, focusing on motivational team building, giving clearer notifications of rulings and assessing “the balance between digital knowledge capture and provision and caseworkers’ experience of financial products and services”. 

The review has also urged the Fos to “project its medium-term costs based on sensible assumptions about case volumes and organisational capabilities, human and technological, required to provide a quality service”.

A Fos spokesman notes that the organisation has made investment in IT infrastructure and enhanced its training programme. “We also said we’d need to look at how we charge businesses we get complaints about, and we’re beginning to have conversations with industry stakeholders about that,” he notes. “We are constantly evolving, based on the number and type of problems people bring to us to resolve, and we’re always looking for ways to improve how we do things.”

Other recommendations could spell important changes for intermediaries. 

Notably, the review recommended consulting on a funding overhaul and the introduction of a risk-based levy. Under this model, firms would pay based on the level of risk they bring to the market. As Money Management has previously reported, advisers have welcomed this and argue that providers should contribute to the Fos’s upkeep in order to take responsibility for the suitability or otherwise of their products.

“Why don’t product providers and wealth managers also pay into the Fos?” asks Susan Hill, a chartered financial planner.