Could consumer duty open the door for CMC complaints?

But a focus on ongoing fees has been renewed by some claims management companies, which are inviting enquiries from clients if they have not received a corresponding ongoing service.

And with the Financial Conduct Authority's consumer duty now in effect, this could also intensify attention on ongoing advice fees.

Julie Preston, a compliance consultant at The Verve Group, notes how one of the biggest challenges under the consumer duty has been assessing and demonstrating fair value.

She adds that the duty has brought to the forefront how the phrase ‘you get what you pay for’ is not always strictly true.

“Claims against firms who cannot provide the service that they are charging their clients for may, in our opinion, become more common,” says Preston.

“Following on from Mifid II and the requirement for periodic suitability assessments, it is now more prevalent than ever to ensure clients with an ongoing service have a need for it, are feeling the value for the price they are paying, and that that is documented.”

Tim Jenkins, a director at consultancy Jencap Partners, says it is “inevitable that CMCs will piggyback on consumer duty rules” to challenge ongoing advice charges, but that there are other factors at play. 

“With the ongoing cost of living crisis causing many to feel financial pressure, it’s highly likely that we’ll see yet another jump in complaints relating across the board, and specifically challenges regarding ongoing adviser costs,” adds Jenkins.

Making clear commitments

B-Compliant director Jeremy Smith likewise notes how the FCA has continued to reiterate its stance on ongoing charges in more transparent disclosures by way of Mifid II, and during various webinars about the consumer duty.

“If you are providing an ongoing service, you should set out clearly the nature of that service, any associated charges and how the cancellation procedure works,” Smith says.

Russell Facer, chief executive of compliance specialist Threesixty, also highlights the importance of clarity with regards to a firm’s service, its charges, and why those charges are levied.

“A lot of firms, particularly clients we deal with, spend a lot more work in making sure they can evidence what good looks like, and making sure they have got a good proposition,” says Facer.

“So I think the claims will come [if] it’s not clear what was supposed to be happening: ‘I understood that I would be getting these and I’ve not been getting them’ – has there actually been an agreement put in place to say one way or another?”

With ongoing advice charges coming within the purview of CMCs, Michael Lawrence, a principal consultant at regulatory consultancy Bovill, says that whether advisers should be concerned comes down to what it is that a firm is committing to do within its ongoing service.

Lawrence adds that when it comes to ongoing services, there are four things that firms need to consider:

1. Does the client need an ongoing service? Do the client’s needs and objectives support them getting an ongoing service?
2. If the client needs an ongoing service, are their needs met by the kind of service that they are getting? “It could be right that they need a service, but perhaps they don’t need an ‘all-singing, all-dancing’ service, particularly where the fee for that is significant,” says Lawrence.
3. Do clients get what the firm said they were going to get? What is it the firm is committing to do for its service, and is it delivering that routinely to clients?
4. If they have received the service, is the outcome any good? “The whole point of a client paying for an ongoing service is for it to add value in enabling their needs and objectives to be met through the solution that they’re given,” Lawrence adds.

Responding to complaints

At Jencap Partners, Jenkins says the consultancy has seen a 20 per cent increase in the last quarter in firms contacting the consultancy to advise on how to deal with claims around service delivery and value.

But according to Jenkins, CMCs often bring claims that are “without merit”, although even a claim that is regarded to be baseless or speculative must be taken seriously.

However, Lawrence says that a firm would be “within its rights” to notify the FCA, which also regulates CMCs, about any “vexatious complainants”.

For firms that have provided an agreed service, Smith at B-Compliant says there remains the task of acknowledging, investigating and responding to any complaints.

“As with any complaint, either via a CMC or direct from the consumer, the appropriate Disp process should be followed,” he says. “Ensure professional indemnity insurers are notified at the earliest possible stage, and be aware of any exclusions and excesses that apply.

“The key to rebuffing a challenge from a CMC is to ensure you set out to deliver on the promises made to clients and you have supporting evidence. Remember, the burden of proof used when investigating complaints is not the same as the ‘beyond reasonable doubt’ principle applied in criminal courts.

“Neither side has to prove whether a particular event occurred. If there is conflicting evidence, a decision must be made on a ‘balance of probabilities’, ie what you believe is most likely to have happened.”

While CMCs do not have extra powers compared to if a client brought a complaint directly to a firm him or herself, Facer at Threesixty warns that CMCs have more knowledge of the complaints process, and that they “know how to niggle”.

“From the adviser’s perspective, they should check that the CMC has got a letter of authority from the client to act on their behalf,” he adds.

Vulnerable targets for CMCs

CMCs are more likely to pursue larger market players due to public noise, Facer says, while it may be more difficult for a CMC to find clients of smaller IFAs.

“From a small IFA’s perspective, it’s probably unlikely that [a CMC would] come after them as individuals. But I’d still say for all firms, they should focus on whether they are clear on what they say the proposition is, alongside their charging structure, and whether they are doing what they say they’re supposed to be doing.”

Another area that Facer flags is a situation in which firms acquire other businesses. “If you’re buying a business and you take on their clients, have you got a full understanding of the expectations of what those clients should be getting?

“Because what sometimes happens is that things accidentally fall through holes,” Facer warns. “So if you’re a consolidator and you’ve bought a business where 10 advisers come across and two leave – the two that leave, what’s happening with their clients?

“For those sorts of businesses, you want to make sure you’ve got good processes. And/or when advisers leave one firm and go to another, and the adviser that’s left can’t take their clients, then who’s looking after them? So that’s where inadvertently people are dropped through.”

Chloe Cheung is a senior features writer at FT Adviser