A fee-based intermediary is set to lose money from a client who is refusing to pay a £200 fee and threatening to take her to the Financial Ombudsman Service (FOS).
Amy King, IFA at Denholm & Brown, has expressed concern that if the client in question carries out his threat to take the firm to the FOS, the IFA will be out of pocket irrespective of whether or not it wins the case.
King says the firm will lose even if it pursues the matter as FOS rules stipulate IFAs must pay a case fee of £360 regardless of the outcome.
King argues the system is “just another government double standard” after a new client refused to pay a £200 fee for the financial plan the firm prepared for him.
She says the client sent an “abusive and threatening” letter to the firm saying he had not asked them to do anything for him and he would refer his complaint to the FOS if they insisted on charging him.
But King points out the client signed the Terms of Business contract and the Fact Find, which clearly showed he had instructed her to carry out some work for him.
If the client refers the complaint to the FOS and is compelled to pay the £200 charge the firm will still be £160 worse off because it has to pay the £360 case fee, says King.
But Emma Parker, spokeswoman for the FOS, points out every firm who pays an annual levy to the FSA gets two free cases before they are required to pay a fee.
She says this means the majority of small IFAs will never have to pay a case fee because it is unlikely they will have more than two cases brought against them.
Parker says most costs are met by large firms but even then only 700 firms out of 22,000 paid a case fee last year.
Moreover, if it is a straightforward case of the client refusing to pay “it is usually resolved at the front line – we would try and mediate it”, she says.
“A big focus of our external work is on early complaint resolution. Only one in five enquiries to the ombudsman service turns into an actual case.”
Of the 614,000 initial enquiries to the FOS, 13,000 are resolved by simple mediation at the front line.
But Parker says most cases “usually have another issue behind them and we need to ask why the customer is not paying”.
If this cannot be resolved by mediation because of a breakdown in the company-client relationship a case has to be heard and costs must be met.
“The idea of the FOS is it is free for the consumer,” says Parker.
“It is here to provide confidence in the financial services industry, and the complaints process can often make the customer feel better about a firm because they hear an independent body say the firm is correct.”
Gareth Thatchett, a lawyer at Financial Services Legal, says the FOS should not even be considering cases of outstanding fees because it is outside their jurisdiction.
”The role of the FOS is to deal with advice and complaint matters,” says Thatchett.
“If the IFA firm has a signed contract from the client they should sue in a small claims court.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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