Caroline Wells, head of industry relations at the Financial Ombudsman Service talks to IFAonline to unravel IFA myths about its role.
Most complaints about the advice given to consumers only arise, it seems, following a breakdown in customer service, rather than because an IFA has given bad advice, suggests the Financial Ombudsman Service, but could be prevented from travelling any further if the adviser firm regarded complaints handling as customer service rather than a legal matter.
It's a view many financial intermediaries might find difficult to swallow given those words are spoken by a representative of the FOS.
However, the huge array of data now amassed by the FOS since its creation in December 2001 now reveals the majority of cases which end up at their door could have been prevented from getting as far as the FOS if the adviser had simply handled the complaint better.
In the first step of a new marketing campaign, Caroline Wells, head of industry relations, and her team at the Financial Ombudsman Service are attempting to break down the myths surrounding the FOS’ role and its aims by directly tackling the eight main questions IFAs ask and pointing out what the FOS is prepared to do to help intermediaries.
The FOS intends to try and get across a handful of key messages across to advisers over the coming months to tackle what appears to be a growing disquiet over the Ombudsman’s role and complaint fees, by presenting workshops for small IFA firms to concentrate on their own working practices and customer services rather than wrapping themselves up in the concept of complaints as a 'scary legal matter'.
One of those key messages is the majority of IFA cases would not arrive at the FOS door each year if the adviser firm deployed better customer service at the time the first complaint is made, because many of those complaints is simply a breakdown of customer service rather than a clear case of mis-selling.
"When you boil it down, the complaint event being questioned is usually much less than the smoke then put up by the [IFA] firm. It is more about the faulty relationship between client and IFA, and in most cases could have been a simple issue to deal with," says Wells.
"It is the softer accessibility through talking and getting to the bottom of the issue which is really required in answering a complaint a person has made. It tends to be about how [the client] was handled by the IFA rather than the advice."
Some of the compensation payouts, says Wells, are made not because there is a case of mis-selling to answer but because the client was then dealt with in a very poor manner once they made their first complaint to the firm.
Reality of the FOS statistics suggests of the 1000 IFA firms which receive complaints each year, only 20% are then upheld, but small payouts are made for the distress and inconvenience of the complaints-handling process.
Communicating that message and the true role of the FOS could be difficult, however, as financial advisers still believe the FOS is the 'Copper's Nark', ‘out to get them’, is an extension of the Financial Services Authority or was only created so it can ‘wring’ money out of advisers before shutting firms down.
"When we are doing exhibitions, the message we try to get across is we are trying to help IFAs. A key myth is we 'entice' work and cases, that we can't wait for the next case to come through the door. Instead, we try to put into perspective our view of the industry what is going on, and what we can do to help advisers," says Wells.
FOS research in fact reveals these misconceptions are formed because many IFAs have as little knowledge of the FOS role as consumers have, and this in turn breeds confusion, myths and misinformation, says Caroline Wells, FOS head of industry relations.
“The question we asked ourselves is how do we engage with the IFAs when in a year, we only have contact with a quarter of the sector? Only 1000 firms have complaints made against them each year, so we really have very little contact with them, but somehow this forms the “urban myth” at the bottom of the beer bottles because they have heard from a friend of a friend some horror story,” says Wells.
“They pick their intelligence up by word of mouth so we have engaged a campaign to try to tackle the myths. We don’t mind if they ask difficult questions because we hope the engagement will stop them from seeing us as some Talisman which will bring complaints if they talk to us,” she adds.
An advertising campaign is being employed at its regional IFA roadshows and workshops to answer the eight main questions advisers ask:
- Why don't you make consymer pay for your service?
- Are you the regulator?
- Why can't we appeal against your decision?
- Why do you always agree with the consumer?
- Why don't you do anything to help firms?
- Why do you fine firms?
- Why should we pay a case fee, even if we win?
- Why do you waste time on complaints that aren't vaild?
"Many IFAs understand where we are coming from," says Wells.
"One of the biggest myths is we don't understand the small firms' perspective. But we change that view straight away when we give them a channel to raise issues.
While most IFAs don't know about our role, they think we don't know about them. We deal with 5-6000 complaints about IFAs each year. Our experience enables us to get to know the IFA sector as a whole and this gives us a valuable insight of the factors that can affect their day-to-day work. It also enables us to learn about the standards that they as a sector consider to be good practice," says Wells.
The FOS' IFA conferences have so far revealed peer pressure between fellow IFAs often uncovers where the problems of business practice lie at individual firms. When one adviser asks "you don't do that, do you", suggests Wells, the adviser tends to reconsider whether the methods they adopt for handling cases and clients is the correct one.
"IFAs are actually fantastic at keeping records because they a practice of keeping 25 years of information. We regularly hear IFAs say I have never had a complaint so the likelihood is they never will. Most IFAs who have never had complaints before are generally hurt by the complaint made against them, both physically and emotionally and take it very personally," continues Wells.
"They don't know how to write letters in this instance, and this may be where initial complaints can go wrong. There is no-one else they can give it to because they operate on their own. And they are in quite an unequal position because they responding to a complaint directly about them but are then required to move 'outside the box' and come up with a fair decision about their own actions."
One of the biggest gripes of IFAs still involves the funding of the Financial Ombudsman Service and often involves advisers questioning why fees have to be paid when a complaint is made rather than when the IFA loses their case.
However, taking this approach would suggest it is possible to make a clear cut 'black and white' case on either side. In reality, says Wells, there is rarely a clear "winner".
"The ombudsman service is an easy 'Bogieman' to wrap issues around, and some argue the FOS is not needed. But it is a very small but vociferous group of IFAs which have not realised they can use the ombudsman as part of their marketing process. US experience has shown if you tell people they can complain, it is more likely they won't.
It's the lack of clear winner on either side which is in part why the way the FOS displays its data on concluded cases will change later this year, to reflect the wider range of outcomes than the simple consumer vs IFA outcome.
Moreover, Wells points out the FOS actually removes many of the legal threats and costs they could face if the "referee" service did not exist.
"The payment of the case fee is not related to the outcome. That would harm our impartiality, as the FSMA set out. But we have to deal with cases and get that money back.
"When we ask IFAs 'would you prefer to pay £360 each time or pay £1500 if you lose a case, they tend to go ashen-faced. We're not here as a consumer champion, we are the referee. Neither side likes us.
"But IFAs would like it much less if they had to deal with complaints through the local magistrates court, where the presiding judge knows little about the financial services industry. Local courts would do much more damage to their reputations too because local journalists are allowed to report all proceedings of the trial, regardless of the outcome," continues Wells.
The aggressive nature of comment made about the FOS has not abatted since the body took over complaints handling in 2001, but the hope is closer work with IFA firms in their own regions will show financial intermediaries the ombudsman wants to help IFA business, rather than fine them.
"Financial services is ultimately about trust," says Wells.
"If you don't trust the adviser, the client - just like any of us - will go somewhere else and would not recommend them to their friends or family. Likewise, if the FOS was not here, IFAs would be in the local courts, and when you compare us to the legal system - as well as the support we try to offer - we're a damn site better than anything else."
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