Selling out: Why everyone is paying for bad advice, the real fuss needs to be over FOS

4th April 2011

Consumers need to have protection from financial firms who chose not to act in their best interests.

Every firm in the Financial Services industry must have their own internal complaints procedure. However, when disputes cannot be resolved internally,

The Financial Ombudsman Service (FOS) can be called upon to help settle them.

FOS was established in 2001 to help settle disputes between consumers and UK-based financial services businesses, including banks, insurance companies, investment managers, and financial advisers.

The ombudsman does settle many complaints early on in the process, but any cases which cannot be settled by mediation or compromise are settled by the ombudsman – and once accepted by the complainant the decision is binding on both parties.

This all seems like a very fair process, until you discover how all this is paid for.

The Financial Services industry already suffers quite extraordinary regulatory costs – we have to meet Financial Services Authority (FSA) fees and levies, Financial Services Compensation Scheme (FSCS) tariffs and levies and Financial Ombudsman Service (FOS) levies and case fees.

These costs all form part of the cost of running any business in the Financial Services Sector and are naturally passed on to consumers in the form of higher fees and charges.

So, we all pay (relatively) the same amount. However, is this really fair?

The lastest FOS complaints data shows that Wealth Manager Towry topped the list of investment firm complaints – 345 to be precise.

That is a huge 19% of all complaints against investment firms. My own firm had none, yet we are still required to pay the same regulatory costs – effectively our clients pay the same proportion of regulatory costs and fees as clients of higher risk firms do.

Effectively the FOS and FSCS system are insurance schemes funded by all firms, but for the benefit of very few.

Although we don't explicitly show the regulatory aspect of our fees we have seen stories this week of some adviser firms starting to do just that.

Towry made pre-tax profits of £17m in 2010 – should they be required to meet a larger share of the regulatory burden than the many thousands of small advisory firms who are being crippled by the ever increasing regulatory costs?

FOS is also setting aside an extra £25m of reserves this year to meet the cost of complaints regarding Payment Protection Insurance (PPI).

If you type "PPI complaints" into google 1.25m results are found in a fraction of a second and many of them are claims companies which have been set up specifically to invite people to make claims about PPI.

My firm has never (and will never) sold PPI policies …… how happy would our clients be if they knew they were helping to fund the new PPI claims industry!

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