The latest figures from the Financial Conduct Authority (FCA) reveal than over 70% of claims made against Money Advisors to the Financial Services Compensation Scheme (FSCS) come via Claims Management Companies (CMC’s).
Is this a good or a bad thing?
On the one hand you could easily argue that this is not unexpected because the role of a CMC is to help a customer make a claim. So, it’s not surprising that so many claimants use CMC’s. On the other hand, you could also argue that 70% is very high and could well indicate that CMC’s are doing rather more than “assisting” customers to make claims but are actually “driving” claims through their advertising.
So, which is it?
Well, the FCA also made a number of other findings including the fact that between July 2019 and October 2020, over 17,000 complaints were opened about the conduct of CMC’s themselves! That’s right, not complaints about the Money Advisors who claims are being made against, but complaints against the CMC’s bringing the claims themselves! With only 400 regulated CMC’s in the market that’s an average of 42 complaints per firms, almost one a week – that seems pretty high to us – especially since we have never had a complaint about our service.
Most of the complaints were about the quality of the “advice” being provided by the CMC. Imagine that. Complaining about the quality of advice being given by the claims company who are complaining about the quality of advice you were given by a Money Advice firm in the first place.
Issues were also raised about paperwork and of course charges. Most CMC’s charge at least 30% of the compensation for their “services”, some even add VAT onto that taking it to 36% and almost 100% of the work done by CMC’s is on a contingency fee basis -. i.e., No Win No Fee. This in an industry regulated by the FCA who outlawed contingent charging by financial advisers last year.
The FCA also said that it had upheld almost 90 claims about marketing material not being “clear, fair and not misleading”.
So, against the background of the FCA’s own findings about the general conduct of CMC’s I think it’s fair to say that we are not surprised that 70% of FSCS claims come from CMC’s who are driving claims numbers. If the FCA introduced the same requirements for CMC’s to charge upfront fees that advisers are required to do, I’m sure the number of claims would fall dramatically. That would reduce claims costs and Professional Indemnity Insurance costs to advisers and might even reduce the overall cost of advice.
Perhaps things are about to change as we’ve just been told about a new All Party Parliamentary Group on Personal Banking and Fairer Financial Services which was established last week to essentially look into the effectiveness of the regulation provided by the FCA.
Not before time.
As we always say, you can probably avoid a complaint if you check out your money advisor thoroughly first.