Shooting ourselves in the foot

Like most IFAs, we are trying hard to be positive about the FSA's RDR.  Based on plenty of past experience, there is always the sneaking suspicion that this is the latest experimental fad from the Regulator.  The FSA's fads tend to be short-lived (remember depolarisation, anyone?) and are usually painful and expensive for the Regulated.  However, the RDR does actually contain much promise, and since none of us want to be negative, reactionary dinosaurs, we square our shoulders and say, "well, here we go, then".

It is, however, in those little - almost insignificant - details that the whole thing lets itself down.  A bit like Gordon Brown's Budgets.

There's one I had almost missed.  There was a piece of tantalisingly brief analysis on the matter in the latest 'Money Marketing' - I spotted it as I used the paper to wrap up the remains of my lunch.  Apparently, the (substantial) hike in the Minimum Capital Adequacy requirement proposed in the RDR will have a much more significant impact on (new model) fee-based advisory firms than it will on (old model) commission-based firms.  Simply because of the way in which commissions are treated within the accounts.

??????

Surely, the whole objective behind the RDR is to move firms away from the old model, into the Brave New World of fee-based advice, because everyone knows that commissions are bad and fees are good?

That's not all, of course.  The sub-text underlying the new stance on professionalism is that the FSA is proposing a whole new bureaucracy to oversee it.  Buried right at the back of the RDR Interim Report, there is a table summarising the budget required - that's another £2m (almost) by 2011/12.  In the cosmic scale of things, compared to how much the FSA already costs to run, this might be regarded as a drop in the bucket, but this will effectively be a new levy on each and every IFA of approximately £40, on top of the direct and indirect costs of upgrading our qualification base.  The FSA's wording implies that this is an insignificant sum - and that's the point:  it appears far too easy for bureaucrats to spend other people's money.

Careful Complaint Management

I note that my KevBlog entries have taken a nose-dive recently.  Perhaps this is simply due to an absence of thought, associated with my advancing years.  However, it's more likely to be linked to admin-overload.

No intermediary firm is immune to the occurrence of customer complaints, and neither are we.  It is irritating and disappointing to report that our Network is currently handling a total of four complaints submitted via the FOS, in relation to three of our Appointed Representative firms.

We take a very proactive approach in handling complaints, and are therefore in a good position to arrive at an objective verdict on their essential nature, and also on the process which is there to resolve them.  Based upon our own experience, I offer the following observations:

1. 75% of complaints received are of an 'opportunistic' nature.  The client is disgruntled about something and wants someone to take the blame.  The IFA is generally regarded as the weakest link in the chain, and therefore becomes the target.
2. Such customers are, generally, not interested in the facts.  If the formal response does not take the form of abject acquiescence, they simply resubmit their original complaint.
3. The FOS does not appear to have a rigorous process in place to identify where this is happening, and will frequently repaper the resubmitted original complaint as if it were a new one, requiring an entirely fresh investigation.
4. The entire process can take aeons.  Once a complaint is with FOS, there is little or nothing the target intermediary firm can do to move things along and achieve a resolution, until the FOS is good and ready.  Whilst this is no doubt a function of the sheer number of complaints, it does not look good on our RMAR reporting when such cases remain unresolved for so long.
5. The FOS appears to somewhat arbitrarily hand out additional fixed penalties for "inconvenience and distress", even if the matter has been handled efficiently and proactively by the intermediary. 
6. By the time the complaint plops through the FOS' letterbox, it is too late to handle the matter efficiently and cost-effectively.  At this stage, you are looking at a prolonged and expensive process - so the temptation is to throw the towel in early unless the complainant is looking for ridiculous levels of compensation.

Our advice?

1. Recognise that client dissatisfaction does happen - and particularly in the present difficult economic climate.  Whilst the whole regulatory framework appears designed to encourage this kind of opportunism, there is something you can do to compensate for it:  keep close to your clients.
2. Do everything you reasonably can to handle an expression of dissatisfaction before it gets referred to the FOS.  Once it arrives there, you have pretty much lost the battle.  This means being cooperative, constructive and proactive in your approach - which sometimes means actively ignoring the kinds of disappointment and hurt caused by implied criticism.  It is all too easy to become wrapped up in seeking to defend our own integrity and professionalism.
3. Treat expressions of dissatisfaction as a useful TCF tool.  The fact is, the client is saying something about your service which you may be able to learn from - if nothing more than the conclusion that you don't want to deal with this kind of individual!

NB.  2020 Financial Services' Members should make sure that they are familiar with the updated section on 'Complaint Handling' in the latest version of the Best Practice Platform, and should utilise the online webform for reporting complaints.

Friday afternoon irritations

I have just returned from one of our Quarterly CPD events for our Network members.  A wholly positive and helpful occasion, it provides a stark contrast to the plethora of financial communications from media and pundits which I reviewed (in vain) in order to find something of merit upon my return.

This 'blog entry is therefore a summary of minor irritations:

1	The discovery that a number of banks, the night before the BOE announced rate-cuts, put their mortgage rates up, so that they could afford to reduce them the next day, whilst maintaining a higher margin.  TCF anyone?
2	In the 06/11/2008 edition of Financial Adviser, we read that Andrew Fisher, chief executive of Towry Law, has written to the Prime Minister blaming all our current financial ills on the iniquitous commission-based remuneration system for financial products.  No doubt the present incumbents in No. 10 & No. 11 Downing Street will be profoundly grateful to Mr Fisher for having provided an alternative scapegoat to themselves, as the primary candidates for the apportionment of blame in mismanaging the economy.  It is characteristic of Towry Law, a relatively late adopter of the fee-based advice model, to offer wholly simplistic diagnoses of complex issues.
3	The discovery that L&G are currently applying MVAs to any withdrawals from With-Profits Bonds exceeding their annual bonus rates.  Might this be affecting clients who, some time ago, elected to draw their 5% 'income' allowance? (Almost certainly). Are they aware that they are being penalised? (Doubtful).  We wrote to our Members at the beginning of the year suggesting that these are simply not acceptable products - five-year average returns published in May 2008 indicate a return of 10%pa, compared with an underlying asset return of (perhaps) 6.5% over the same period.  At that time, L&G were paying an interim of 3.25% and a terminal bonus of 1.75%, but that was before the bottom dropped out of the stockmarket.  With commissions of around 8% being paid to Barclays and the Woolwich, one can see why this kind of product is being sold - which again raises interesting TCF issues.   With-Profits Bonds are the ultimate TCF-unfriendly product.  I would go as far as to suggest that IFAs have a duty to protect their clients from them.
4	At last!  Conclusive proof that some recruitment agencies are targeting the advisers of networks and large IFA practices, by pretending to be calling from the FSA.  One such recruitment specialist, claiming to be 'phoning from the FSA's "compliance department" (!) thankfully lacked sufficient insight to decline our invitation to send us information by email.  You almost couldn't invent this kind of practice - it has that refreshing combination of shabbiness and intellectual vacuity which defines a sector which is simply begging for regulation.