Advisers have called on the regulator to tighten the rules on claims management companies after a vulnerable client was left with a bill for more than £11,700.
The warning bells were sounded after one vulnerable client, now being represented by adviser Felix Milton at Philip Milton and Co, was hit with an £11,714 bill on a £32,539 compensation payout.
He said: “In this case, it’s a vulnerable client who tried to cancel but was told he had come too far to do so. It’s ridiculous.”
Mr Milton’s client was invested in potentially illiquid and high-risk investments by the now-defunct discretionary fund manager Organic Investment Management Limited and the advice companies associated with it.
The client claims he was cold-called by the CMC, who is not being named, when the DFM first went into default.
From mid-July to September this year, the client tried to cancel his agreement with the claims company via phone calls and emails after discovering he did not need to pay more than a third of his compensation in fees.
The client was later told he had “come too far” and had “stopped and started too many times” to cancel his agreement with the CMC.
The CMC denied any cold calling and said although the client had made contact about cancelling the claim, he later confirmed he would continue the process in a telephone call with a company director.
According to the Financial Conduct Authority, authorised CMCs must offer a 14-day cooling off period when a customer can cancel a contract without being charged.
After the 14 days the CMC must also allow customers to cancel the agreement, but can charge cancellation fees that are not in excess of what is “reasonable in the circumstances and reflects the work undertaken”.
In October, the client received a letter congratulating him on his self-invested personal pension “win” and paid £11,714 to the CMC – 36 per cent of the total payout.
As a result, he has added his voice to recent calls for the FCA to introduce a fee cap on CMC charges.
Calls for fee reform
The Financial Services Compensation Scheme does not charge individual consumers or CMCs for using its service, and Mr Milton said it was possible to charge a maximum of £375 for the time spent in submitting a claim.
He said: “I would like the regulator to introduce a fee cap. That would destroy their current business model.
“The FCA has decided the defined benefit market is hurting consumers so it has introduced a contingent charging ban. The same should happen for CMCs. A fee cap of £1,000 – win or lose – would sort out a lot of the issues.”
Philip Milton and Co, a discretionary fund manager and adviser with claims management permissions, has secured £861,000 in compensation for Organic clients so far, having charged a total of £8,400 across a number of clients – less than 1 per cent of the total payout.