Ombudsman costs rise more than 80% in five years

The source, who wants to remain anonymous, disclosed to FTAdviser data that suggests the overall cost of dealing with what is labeled a general casework complaint has increased 84 per cent over the past five years.

The ombudsman is funded by a compulsory industry levy and a £550 case fee charged to firms that receive more than 25 cases in a year.

Complaints at the service are divided between general casework claims and mass claims, with the latter including claims such as payment protection insurance, which unfolded in 2011 but is now coming to an end.

In 2016 the Fos underwent a restructure in a bid to future-proof the service against the loss of PPI claims.

But the source said the cost and productivity forecasts made as part of the restructure had been "grossly mis-calculated". 

A Fos whistleblower warned mass claims were subsidising the cost of resolving the general casework workload, which means the service could face a funding issue, once the mass claims subside. 

The source said: “The Fos management imposed this huge restructure without properly piloting it first. It made unrealistic assumptions about how efficient the new system would be.

"And on top of that, it is costing far more than before, with the finance industry having to foot the bill. The re-structure was intended to make the complaints operation financially sustainable post-PPI but it has completely failed in that aim.

"If I were paying for this, I’d want to know why no-one has apparently been held accountable for the dreadful decisions which have been made.”

In data seen by Financial Adviser the direct cost of dealing with a general casework complaint rose 145 per cent from £334 in 2015/16 to £819 in the first quarter of 2019/20. 

The direct cost of dealing with a mass claim complaint rose by 44 per cent from £260 in 2015/16 to £374 in Q1 of this financial year.

When shared costs were added, such as building, IT and HR costs, the overall cost of dealing with a general casework complaint rose by 84 per cent from £639 in 2015/16 to £1,174 in the first quarter of 2019/20. 

We consult publicly on our funding plans every year to ensure that they are robust and transparent - Fos spokesperson

In the same time period the overall cost of dealing with a mass claim complaint rose by 29 per cent from £565 to £729. 

The ombudsman said it recognised the direct figures, but was unable to verify the accuracy of the overall cost statistics.

It said the figures from 2015/16 and 2019/20 were not "directly comparable" because some items, such as short-term lending claims, were defined as general casework in some years, and mass claims in others.

A Fos spokesperson said: "Our funding structure is designed to provide a high-quality service that gets consumers and businesses a timely response to their case.

"We consult publicly on our funding plans every year to ensure that they are robust and transparent."

The service currently receives significantly more income from case fees than levies: an estimated £251m in 2019/20, compared with £45m from levies. 

50:50 proposals

Changes to how the Fos is funded were put forward in July. The ombudsman proposed "significantly" increasing the proportion of the income it gets from its industry levy, suggesting a funding model split 50:50 between the levy and case fees. 

This would be a move from its current funding split of 85 per cent coming from case fees and 15 per cent from the levy, with the Fos proposing it would help manage the increasing number of more complex cases and even out the workload.

But the proposals were met with industry backlash, with trade body the Personal Investment Management & Financial Advice Association branding the suggested shake up as ‘unreasonable’, ‘unfair’ and ‘disproportionate’. 

The Building Societies Association also heavily criticised the proposed changes, warning the plans would penalise firms which attract fewer complaints. 

Last year the ombudsman was forced to deny its 2016 restructure had been a failure in front of the Treasury select committee, which grilled chief ombudsman Caroline Wayman and then-chairman Sir Nicholas Montagu following the publication of a report into the way the service operates.

A review led by Richard Lloyd had been launched after allegations were made in the Channel 4 programme Dispatches that some decisions made by ombudsmen may have not been fair to consumers.

While Mr Lloyd largely exonerated the ombudsman service, and dismissed concerns about institutional bias in favour of financial institutions, he raised concerns about the restructure that took place in 2016.

Barry Strathearn, head of compliance at Lowes Financial Management, said: "The increasing costs of the Fos, FCA fees, FSCS fees and in particular the increase in PI Insurance - which is directly related to the FCA's confirmation in March of this year the compensation limit will increase to £350,000 - firm profits are being squeezed, to the extent some firms have had enough and are selling up.

"We can only assume that some of the increasing costs [advisers are facing] will be passed onto the end client. While this is not something we are considering, we can appreciate why some firms are feeling it necessary to increase their initial and ongoing costs."

rachel.mortimer@ft.com 

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