A minor change to the FCA handbook has been introduced with little fanfare, but it removed one of the Financial Ombudsman Service’s (“FOS”) grounds for dismissing complaints without considering their underlying merits.
As of 9 July 2015, the FOS can no longer dismiss a complaint brought on the basis of “investment performance” and therefore decline to consider the complaint’s merits (DISP 3.3.4A, FCA Handbook). Previously, a complaint brought before the Ombudsman solely on the grounds that ‘had a consumer been advised to invest in fund X instead of fund Y it would have performed better’, could, in theory, be dismissed in this way. This provision was seen by some as a barrier to a potential deluge of complaints from disgruntled consumers whose investments had not performed as well as they might have hoped, although the advisers themselves had done nothing wrong.
At this stage, it is difficult to say what consequences the amendment will have for financial advisers. Some in the industry fear that widening the criteria for acceptance of complaints and permitting those which can only be made with the benefit of hindsight will open the flood gates for complainants to succeed with the FOS, a tribunal which is already viewed as consumer-friendly. Even if such claims do not ultimately succeed at the investigation stage, the time the FOS spends considering the additional claims will potentially increase its costs, thus impacting on advisers’ annual FCA fees. As a result, firms may spend more on risk analysis and dealing with complaints.
These concerns may prove to be ungrounded. The FOS still has the discretion to dismiss complaints without considering their merits on other grounds, such as the complaint would be more suitably dealt with by a court. Furthermore, in our experience, the “investment performance” ground has not been relied upon often in the past. It is debatable whether its removal from the list of grounds for dismissal will have any impact on FOS decisions.
There is also some speculation as to what the ground actually meant: is the FOS suggesting that any complaint relating to the performance of an investment now has the potential to succeed regardless of any wrongdoing by a financial advisor? The FOS has offered no guidance as to the definition of what might count as an unacceptable level of poor performance justifying a complaint.
Our view is that the impact of this amendment is likely to be less detrimental than some have suggested. The “investment performance” ground was not often relied upon and the FOS was rarely inclined to dismiss a complaint on this basis. It is unlikely, therefore, to open the flood gates. Even if we were to see an increase in the number of complaints, the FOS will still need to consider whether the complaint is fair and reasonable - meaning these complaints will not automatically succeed. Nevertheless, it remains important to consider other grounds entitling the FOS to dismiss a complaint, as it is often desirable to oust the FOS’ jurisdiction, and instead respond to a complaint at the Pensions Ombudsman Service, or respond to a civil claim. It is also important to appropriately argue those points in submissions to the FOS as it only has discretion to dismiss complaints and, ordinarily, may need some convincing that it should not have jurisdiction.