No lawful industry has been rocked by such a succession of scandals as financial services. From endowment mortgages and pensions to precipice bonds and split capital investment trusts, almost every year brings new evidence of mis-selling and losses to investors which altogether run into billions of pounds. So this month, partly because a lot of readers ask me with some desperation ‘What can I do about…?’ I am going to explain what you can complain about, how to do it, and what – if anything – you might get by way of compensation.
The Financial Services Authority (FSA) – which regulates the financial services industry – costs around £260 million a year. Investigating complaints and compensating those who have been mistreated costs almost as much again. Altogether that puts the price of policing – and paying up for – the hundreds of thousands of people who make their living from selling us financial products at more than half a billion pounds annually. Around £11 a year for each adult in the UK. We all pay for it through the costs of banking, mortgages, insurance, financial advice, pensions, and investments. So if something has gone wrong with your bank, insurance company, investment house, or mortgage you should not hesitate to try to get it put right. And if you have lost money get it back.
One word of warning. You cannot get compensation for an investment that has performed badly as long as the risks were made clear to you at the start. Of course, there can be endless argument about how clear the risks were made. So it is very important to check the full product details and small print and not to rely on statements in adverts, promotional literature or given verbally by a sales person. Just because an investment fund is described as ‘high income’ or ‘growth’ does not mean you can get compensation if it produces no income or shrinks. These names are hopes not promises. When you buy a financial product the sale will be followed by reams of paperwork. Do not just file it. Read carefully the letter you get setting out what happened at the meeting you had with the financial adviser and the conclusions come to. Check especially what it says about your attitude to risk. Financial advisers tend to overstate your willingness to risk your money because risky investments tend to pay them more than safe ones.
Most complaints are not about mis-selling but such things as delayed payments, incompetent administration, disputes over insurance claims, charges when you end a financial deal, hefty penalties when you make a mistake, and of course the sheer complexity of products that are often hard even for experts to understand.
Step by step
Start by writing to the person you dealt with, or their manager, setting out
the problem clearly and dispassionately. If you believe that you have lost money
due to their actions then ask for it back. It is better to write than to phone.
Not only can you keep a copy of your letter but it is usually cheaper than
spending a long time on the telephone – especially to an 0870 or 0845 number. If
you do phone, write down the time and date, who you spoke to and a summary of
what was said on both sides.
Many complaints are settled at this stage. But if you do not get a satisfactory reply – or any reply at all within a month – write to the Chief Executive of the company you dealt with. That could be the insurer, bank or investment fund or, if you used one, the financial adviser who sold you the product. Put ‘complaint’ at the top of the letter and set out the details of what has gone wrong, your financial loss or costs, and what you expect the company to do about it.
At this stage you may be offered some compensation. Consider very carefully whether you are going to accept it and never do so if it comes with a demand that you agree not to take the matter further. If the complaint is not resolved to your satisfaction or you do not get a final reply within eight weeks of writing your formal complaint letter then the case has reached what is called ‘deadlock’. You can then refer it to the Financial Ombudsman Service (FOS), but you must do that within six months of the deadlock. You do not have to pay FOS anything, win or lose. But the company will want to avoid going to the Ombudsman. Apart from any compensation if it loses, it has to pay FOS at least £360 and will incur considerable costs in preparing the case.
Recently a new breed of ‘complaints handlers’ have started up in business to help people with compensation claims, especially for mortgage endowment complaints. Charges are very high, often as much as 35% of any compensation you get. There are very few circumstances in which you need this help. It is generally straightforward to complain and get compensation by yourself. Only if your case is very complex or you find the procedures and daunting should you consider using a claims handler. Neither their charges nor the quality of what they do is regulated.
Compensation
The Ombudsman Service is not a court. It is a service to resolve disputes
and in the first instance an Assessor – rather than an Ombudsman – will try to
find a compromise that both sides will accept. Only if you or the company reject
that compromise will your case go to an Ombudsman for a formal ruling. Generally
the Ombudsman will order compensation to put you in the position you would have
been in if the company had treated you properly – that applies equally to mis-selling
or maladministration claims. If you are still unhappy with the result you can go
to court. But for that you will need a solicitor and run the risk of paying high
costs whether you win or lose.
You can complain to the Ombudsman about any financial firm, such as a bank or investment company, that is registered with the FSA even if the complaint concerns a product – such as a current account – that is not regulated by the FSA.
The number of complaints to the Financial Ombudsman has more than quadrupled in the five years since it was set up but the number of staff has not risen as rapidly so expect to wait at least six months for a decision.
In some cases, the company you complain about may go out of business. If it has been mis-selling one particular product to many people or if the business has been run badly for a long period it may become overwhelmed with claims and go bust. In that case, the Financial Services Compensation Scheme (FSCS) will step in and pay any compensation due. However, there are limits to how much the FSCS can pay. If you lose money from a bank or building society you get 100 per cent of the first £2,000 and then 90 per cent of the next £33,000. So the maximum compensation is £31,700. If an insurance claim is not met because an insurer or broker has gone bust, you get 100 per cent of the first £2,000 and 90 per cent of the rest. And the maximum compensation for a lost investment is £48,000. You normally have to claim compensation within six years of the company going out of business.
The FSA, the Ombudsman and the FSCS only cover registered financial companies in the UK. Some financial activities are not regulated. Sales of physical things like antiques, paintings, cars, wine, buildings, land, coins, stamps, and gold are not regulated – even when they are sold as ‘investments’. So if something goes wrong you generally will have no redress at all. Similarly, investments outside the UK are not covered – though anyone who sells them in the UK may be. Of course, any company or person who sells you an investment illegally without being registered is also outside the compensation system. So you should only ever buy an investment from a UK company that is regulated by the Financial Services Authority. You can find out from the FSA if a company or individual is registered.
Further information
The Financial Services Authority (FSA) consumer helpline 0845 606 1234 or www.fsa.gov.uk. Check if a firm or individual is registered here.
The Financial Ombudsman Service (FOS) 0845 080 1800
The Financial Services Compensation Scheme (FSCS) 020 7892 7300
July 2006