By Robert Stock Aifa has given a cautious blessing to the Financial Ombudsman Service's (FOS) fun...
By Robert Stock
Aifa has given a cautious blessing to the Financial Ombudsman Service's (FOS) funding mechanism, under which IFAs will pay an annual fee from April 2002.
In addition to the fee, intermediaries will have to pay a handling charge if complaints are bought against them.
Currently, many IFAs do not have to pay any fees directly to the ombudsman, except when a complaint is brought against the firm.
The future case fee will be less than the £500 currently charged and the levy will be dependent on the size of the company's turnover.
The exact mechanism for calculating the levy has not yet been formulated, according to the FOS.
Paul Smee, Aifa's director general, said that despite the high volumes of business written by intermediaries, the number of complaints handled by the PIA ombudsman, which derive from the IFA sector, is historically low at less than 15% of all complaints it receives.
"This means that a significant number of IFAs may have never, or rarely ever, been subjected to any direct costs for the ombudsman. The FOS will need to demonstrate to IFAs the value of imposing a general levy and not take that for granted."
Despite the guarded acceptance in its response to the FSA's consultative paper, Funding the Financial Service Ombudsman and the FOS Plan & Budget 2001/02, Aifa warned that the FOS must show IFAs that they are getting value for money.
Smee said: "Aifa supports the proposal to base costs on a combination of a general levy and case fees. We consider the 50:50 split between the levy and the case fees to be a reasonable starting point on which to raise funds. While we accept there is some validity to the argument for setting the cost more on a 'user pays' basis, any adjustment to the 50:50 split should not result in case fees being so high that one or two complaints might impact on the financial stability of very small firms."
Smee said it was disappointing that there has been a sharp increase in complaints activity and there is an expectation that this will continue to rise with the estimate of total actual cases for 2000/01 at 38,000 and the forecast for 2001/02 at 31,700. The number of cases predicted to be handled by the Investment Division for 2001/02 is 24,000.
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