In July this year it was reported that a complaint against BBT Financial Services, over the recommendation of a pension transfer back in 1995, had been upheld by the Financial Ombudsman Service (Fos), which deemed the advice to be unsuitable.
In the same month it was revealed that Lloyds Bank had been ordered to pay compensation over advice it gave in 1999.
Back then, a Lloyds Bank adviser had recommended a man in his late 50s, who had recently retired, to opt for a unit trust, a guaranteed stock market bond and to invest in a personal equity plan (Pep).
So how concerned should advisers be over advice they gave years ago coming back to haunt them?
Michael Cotter, a lawyer at Setfords Solicitors, said: “I have seen over the years IFAs who retired and found themselves subject to complaints and having todeal with the Fos, many years after they thought they would need to have run off cover.”
It has never been easier to target customers with direct marketing.James DingwallIn the absence of a long stop – something many in the industry have called for to give advisers peace of mind – there is no way to prevent an individual bringing a fresh complaint about decades-old advice.
And the latest data from the Fos has cast doubt on the case for a long stop on liability for advice ahead of a review by the Financial Conduct Authority (FCA) next year.
The risk of liability
The figures showed the number of complaints lodged 15 years or more after the advice was provided are decreasing.
If a consumer thinks they have been misled on a piece of advice they have a certain time period in which to make a complaint; this is six years from the event the consumer is complaining about, or three years from when they knew they had cause to complain.
The costs attached to filing a complaint with the Fos are next to nothing and often it is a more convenient route for individuals to pursue complaints than the courts. Where an adviser has retired or sold their book of business or the firm, the extent of their liability often depends on the sale agreement.
James Dingwall, chief executive of compliance firm Thistle Initiatives, said: “If you sell your company and you agree you are no longer liable for complaints, it’s the company that then purchases the company that has to settle its debt. If you just close down your company and receive a complaint, you are still under an obligation to deal with that complaint.”
Mr Cotter said if the adviser is an appointed representative, then in most circumstances the liability will remain under the principal firm, such as the network or firm providing the authorisation. If it is a limited company or limited liability partnership, there are other considerations that need to be taken into account when the business is closed.
He added: “All IFAs should get some company law advice as to how their business is properly structured.
“What is concerning is where you are an individual that is directly authorised, though [this is] not as common as it was, they are then personally liable. Those structures are difficult to break. If one gave advice many years ago, on a personal basis, that’s where you find they are able to be attacked in the future from a claims perspective.”
Insurance costs rising
The number of complaints lodged many years after the advice was given may be reducing, but it has been significant enough for insurers to take notice.
According to Mr Dingwall, it has never been more difficult and costly to get run off professional indemnity (PI) insurance, which covers advisers after they have left the profession.
It is also not difficult for claims management companies (CMCs) to identify individuals who may feel inclined to make a complaint.
Mr Dingwall said it is fairly easy to find firms that have had their licences suspended on the back of pensions reviews, while platforms like Facebook can be used to target customers.
He added: “If you look at a firm that has been suspended by the FCA over pension transfers, all you need to do is go on the FCA register, find out where that firm is based, then you can use Facebook to send out an advert to people in a specific location to ask if they were advised by company X to come out of a pension scheme.
“It has never been easier to target customers with direct marketing.”
As the deadline for filing PPI complaints draws closer – August 2019 – there is a fear that CMCs will turn their focus with more fervour towards the pensions sector.
Rory Percival, former technical specialist at the FCA, said sectors that CMCs are likely to focus on include pensions, Self-invested personal pension, platforms and defined benefit transfers.
Mr Percival added: “Ihave no doubt CMCs will streamline the process with a scattergun approach, or flagging up certain key areas of unsuitability where they know the market has not been very good and going at those, rather than considering them in sufficient detail individually.”
Fear the change
Advisers also fear they will always be caught out when rule changes occur. But Mr Percival said there is a difference between the FCA changing the rules and the regulator notifying or clarifying a rule because they see people breaching it.
Back in 2015 the FCA defended itself against claims of retrospective regulation stating it had struggled to find any instances of it happening.
Not everyone agrees. Mr Dingwall said: “In a scenario where you gave advice three years ago and the world moves on you have got to expect the advice that is being complained about is reviewed under the regulations at that time.
“The FCA and Fos are very keen to say they do not use retrospective regulation. I am not convinced that is how it always works.”
To protect themselves in the face of complaints, there are steps advisers can take.
Mr Cotter stressed that advisers need to have a strong compliance department in place and make sure their files are up to date.
He added: “So many IFAs fail at the first hurdle: their own paperwork. They have done proper suitability, but not [good enough] ‘know your customer’ information and have not done a proper assessment on risks. If you have got those, you have a fighting chance; otherwise you are always going to be fighting an uphill battle.”
Ian Cornwall, director of regulation at Pimfa, said: “Make sure you archive your records well, so that if you do get a complaint you can lay your hands on the material.”
Where financial planners are aware of gaps in their advice process, firms should go back and correct that.
Mr Dingwall said: “We have seen that some advisers do not deal with complaints correctly. They have got to spend time answering the complainant’s points, addressing them one by one, providing evidence, looking at the suitability obligations and providing a robust response.”
Although the FCA is committed to reviewing the long stop, many in the industry are not so optimistic that government would back a move, from a public policy perspective, to stop customers from making complaints against companies.
So the onus to provide a robust defence is most likely to be well and truly in the adviser’s court.
ima.jacksonobot@ft.com
