I often hear a frustration from financial professionals at the work that Financial Ombudsman Service (FOS) does.
There can be a perception that the FOS will mostly find in favour of the complaining party, to the detriment of the financial professional; phrases like ‘compensation culture’ are often used.
But what does the data actually show us? Are the number of complaints increasing and are financial advisers unfairly found wanting?
Since June 2020 the FOS has published an annual report into the complaints it receives. The 20/21 report showed that it received 278,033 new complaints, but of those only 7.5% (20,854) related to investments and pensions (the other categories being banking and credit 61.4%, insurance 16% and PPI 15.1%).
Already I am the bearer of good news! By some margin, financial advisers receive the fewest complaints of all the financial professionals. The slightly less pleasing news is that the number of investment and pensions complaints increased from the previous year by a whopping 91% (19/20 - 10,920).
Of the 20,854 complaints 3,021 (14.5%) related to Sipps and, as per my article on this a year ago, administration or customer service was the most frequent reason for a client to complain.
FOS Nina Walter, ombudsman, commented on these statistics saying: “Consumers often don’t understand that their pension value is continuously fluctuating because it relates to underlying assets. Businesses could do more to explain this. For example, when requesting to take benefits, switch funds or transfer their pension, customers should be clearly informed that the value they will get might be higher or lower than when they make their request. Explanations of how a particular product or process works should be easily understandable for the lay person.”
Interestingly, compared to last year, there were significantly more complaints about administration or customer service (5,363 (19/20) v 8,483 (20/21)) and a notable increase in complaints about unsuitable advice (3,824 (19/20) v 5,529 (20/21)). Occupational pension transfers provided only 765 complaints during that period.
How many were upheld?
What the data shows us is that the FOS does not uphold complaints against the adviser with anyway near the perceived regularity. Only 22% of the complaints relating to investments and pensions were, in fact, upheld against the adviser.
The FOS commented on those figures: “While pensions and investments continued to account for the smallest part of our casework, these cases can involve life-changing sums of money. We saw significantly more complaints about pensions and investment providers’ administration or customer service – such as those centred on delays and communication, with firms giving either to little or no explanation about the timescales involved and any impact on Covid 19 on these.”
And the complaints relating to Sipps (1,691) appear to relate to circumstances where the pension monies were transferred to unusual unregulated investments. The FOS’s comment in relation to those was “We saw many examples of these transactions resulting in the loss or likely loss of consumers’ pensions – and upheld the majority of these complaints.”
What this says to me is that the adviser community is in good shape, their clients are happy and bad advice is not prevalent. And who knows that may happen in the coming months; a move towards a recession, highs or lows in the markets or changes to the regulatory framework – what the information from the FOS tells us is that maintaining an excellent service to clients and managing their expectations may be the most important focus for your firm.