Retail Distribution Review

Written evidence submitted by Mike Jeacock, Acacia Financial Services

Hard Facts

Complaints 2009/10 – received by Financial Ombudsman =163,012

Businesses complained about by sector-

Banks 61%

General Insurers 11%

Product Providers(life assurance & investments) 8%

General Insurance Intermediaries 8%

Mortgage Intermediaries 4%

Building Societies 2%

Businesses with Consumer Cred.Licence 2%

Others(including fund managers and stockbrokers) 2%

Independent Financial Advisers(IFAs) 2%

Source Financial Ombudsman Service Annual Review 2009/2010

Banks v IFAs comparison:-

Banks 61% = 163,012 x 61% = 99,437 complaints, complaints upheld 52%=51,707

IFAs 2%= 163012 x 2% = 3, 260 complaints, complaints upheld 39%=1,272

• Total number of cases upheld by FOS= 50% =163,012 x 50% =81,506

Assumptions-Consumer Detriment Misselling figure £250,000,000 (FSA figure)

Average proportionate figure = £250,000,000 divided by 81,506 (cases upheld)

= £3067 per case complaint upheld

Therefore banks detriment = 51,707 x £3067 =£158,585,360

IFAs detriment = 1272 x £3067 =£3,901,224

Personal Comment:- Why is it that IFAs who have only 1.56% of total upheld complaints (1272 divided by 81506 x 100) compared to the banks who have 63.44% of total upheld complaints (51707 divided by 81506 x 100) are being heavily penalised by the FSA to such an extent that they will be forced out of the industry, whereas banks are treated less harshly.

It appears to IFAs that Sants and Turner who both have banking backgrounds would like to see the number of small IFAs forced out of the industry and by their own comments expect 15000 – 20000 IFAs to leave the industry. Assuming each IFA has two support staff this equates to upto 60000 out of work, leaving their clients to be taken up by the banks with the worst compalints record.

Mortgage Endowments & Pension Misselling Complaints

The FSA and certain Ministers are continually stating that RDR needs to be implemented in its current form due to Mortgage and Pension misselling.

Once again from the FOS Annual Review 2009/2010 provides the following facts:-

Number of Complaints

2010 2009 2008 2007 2006

MORTGAGE ENDOWMENTS 5400 5798 13778 46134 69149

(percentage of total complaints) ( 3.3%) (4.5% ) (11.19% ) (48.9% ) (61.2%)

PENSIONS 3594 4825 5297 3687 4053

(percentage of total complaints) (2.2%) (3.8%) (4.3%) (3.9%) ( 3.6%)

OVERALL TOTAL COMPLAINTS 163012 127471 123089 94392 112923

Personal Comment:-From the results Mortgage Endowment complaints have reduced dramatically from 61.2% of the overall total complaints in 2006 down to just 3.3% of overall complaints in 2010.

Very few consumers use endowments for interest only mortgages these days and the trend should continue reducing so why oh why is this being continually brought up when the problems are becoming history and shouldn't be repeated.

Source Financial Ombudsman Annual Review 2009/2010

Additional Comment regarding Mortgage Endowments

Many IFAs had complaints upheld against them for endowment sales between 1988 and 1994 resulting in the high number of complaints being upheld in 2005, 2006 and 2007.

However what you may not know is that 12 product providers in their projections had not included their own charges in the projections therefore their quoted premiums would never have met the maturity values they quoted. This means that the Financial Advisers were unaware of this and have never been able to obtain the names of the product providers.

The FSA made a deal with these product providers not to release their names for the reasons stated in the below Decision Notice which should be read in full from the source link. Even though the Information Commissioner's decision was for the FSA to disclose the names of the Product Providers the FSA managed to appeal against this decision and therefore the Commissioner's decision has been overturned.

It is the view of many IFAs that the number of complaints against them were not their fault as the figures these providers illustrated were incorrect and the FSA have protected them to this day quoting the Human Rights Act etc in the following document. The FSA allowed the companies to cover their breaches by compensation payments to the affected clients.

An interesting view is that these product providers were only open to receiving complaints upto certain dates at which there is a cut off against any redress being taken against them. One rule for one and another for us IFAs where we can be hounded to our grave with complaints due to having no Longstop which is another valid issue that needs to be resolved.

I believe that the reason we do not get any Product Providers supporting the IFAs anti RDR stance is that as the FSA have not brought their names into the public domain where there could have been recourse for further complaints against them they are subject to the hold the FSA have over them. The amounts these Product Providers have saved in misselling costs must be millions due to the cover the FSA gave them and no doubt like the bankers the CEOs of these companies have been able to continue to draw their extortionate salaries and bonuses.

IFAs will suffer loss of income when they are forced out with only a small complaints record compared to the banks and Product Providers. The FSA were quick to state Human Rights Act for the 12 protected providers but then not listening to Peter Hamilton Barrister who says that the FSA could be in breach of the Human Rights Act in forcing us to requalify to stay in business.

Payneb Reference: FS50075781

Freedom of Information Act 2000 (Section 50)

Decision Notice

Date: 7 August 2007

Public Authority: The Financial Services Authority

Address: 25 The North Colonnade

Canary Wharf

London

E14 5HS

Summary

The complainant requested that the Financial Services Authority (FSA) provide him with the names of any companies it had identified by it as using inappropriate charges in setting premiums when selling endowment mortgages. The FSA refused the request on the grounds that exemptions under section 31 (law enforcement), section 43 (commercial interests) and section 44 (statutory prohibition) applied. The Commissioner's decision is that the exemptions under sections 31 and 44 of the Act do not apply. He has also decided that the exemption under section 43 is applicable, but the public interest in disclosing the information outweighs that of maintaining the exemption.

The Commissioner’s Role

1. The Commissioner’s role is to decide whether a request for information made to a public authority has been dealt with in accordance with the requirements of Part 1 of the Freedom of Information Act 2000 (‘the Act’). This Notice sets out his decision.

Source http://www.ico.gov.uk/upload/documents/decisionnotices/2007/fs_50075781.pdf

Additional comments regarding Pension Complaints

Complaints have reduced over the past 3 years and over the 5 year period have reached a high of only 4.3% of total complaints in 2008.

Again we ask why the FSA and certain ministers appear to have an issue with the above which only account for 8994 complaints out of total of 163,012 for 2010 representing 5.51% only. This figure is total cases looked at and if we take only 39% upheld for IFAs this brings it is 39% of 5.51% which 2.15% only for IFAs.

Shouldn't the FSA be looking at the other 97.85% of complaints elsewhere!!!

Discrimination

As IFAs many of us are self employed. We are expected to run a business where in my case I start early and get home for 7pm looking after the normal consumers in the street 95% not being high net worth clients. We are expected to spend endless hours studying to re qualify so where are these hours coming from if not at the expense of our income whereas the banks continue to pay their staff and give them time off to study and we are expected to do the qualifications in the same timescale. Well shouldn't the FSA be treating customers fairly when it comes to us guys paying their salaries.

Other Facts

· FSA state detriment for misselling to be in the range of £400million to £600million. Where is their evidence!! Under Freedom of Information true FSA figure is £223 million. (Source FSA policy statement PS10/6 Distribution of Retail Investment -CP09/18 and Final Rules). Figure over stated by 124.2% if £500 million taken.

· FSAs reviews have been based on 2007 figures, where are latest figures 2009/2010 which are available and would give a more updated trend from FOS 2009/2010 review previously referred to.

· FSA state that higher qualifications will lead to fewer complaints. One would assume that the Legal profession are highly qualified but the Legal Complaints Service handled 15,069 complaints in 2009 upholding 3039. source http://www.whatdotheyknow.com/request/statistics_for_last_available_year

· Where do the FSA get their information from!

Additional Facts showing various press comments attached as provided by Adviser Alliance head Alan Lakey are attached.

Commissions

· Consumers are losing their choice

· FSA and ABI research has confirmed that commissions bias is low (source Charles Rivers surveys)

· Until 1995 there was a maximum commissions agreement which was ended by the OFT

· Suggestion -A new maximum commission agreement would remove both the perception and reality of bias and still gives consumer choice.

Qualifications

· Existing qualifications were set by regulator the PIA in 1997

· All other professions allow existing practitioners to continue when uplifting entry level qualifications.

· All other professions allow for focused CPD for existing practitioners.

· The FSA's proposals are a restraint of trade and also a breach of section 6 of ECHR(European Convention on Human Rights)

· The FSA's proposals do not allow for specialists who operate in one or two niche areas.

Longstop

· Advisers enjoyed protection of Longstop until December 2001 when FSMA came into force.

· No other section of the UK has had this protection removed ie discrimination

· Parliament did not agree to this removal-it was never discussed, debated or voted on ie discrimination

· This is a further breach of section 26 of ECHR

Conclusion

In all aspects the small IFA has been heavily regulated for years and it gradually wears you down and brings on depression. It was for this reason that I called the meeting in 2009 to put our views across to Harriett Baldwin, Mark Garnier and Robin Walker at the meeting in Stourport with fellow IFAS.

We would like to thank all at the Treasury Select Committee in giving us hope that something can be done and that the new Government with the CPMA will once again take control of the Regulator as 'such power is dangerous'.

January 2011