I was lucky enough to meet with the Financial Ombudsman Service (FOS) recently. I specifically wanted to find out what product providers could be doing differently when it comes to complaints regarding investments, super and insurance.
My particular interest is around PDS disclosure, but of course the FOS considers much more than just offer documents. It was a fascinating discussion, and here is a summary of the key issues that the FOS are currently seeing:
- Offer documents that don’t cover enough detail regarding common ‘what if’ scenarios
- Interpreting an ambiguous policy/constitution/offer document in favour of the product provider
- Not considering the unfair contracts legislation and principles when reviewing a complaint
- Relying on a clause in a policy/constitution/offer document without first satisfying the reason for relying on that clause
- A dispute process that is not part of the main business
Given that most product providers use the eight-page, short form PDS, this is an interesting conundrum! Just how do you balance up the page length with the FOS’ expectation that events that are reasonably foreseeable should be covered in the offer documentation?
The example we discussed involved a fund which offered a particular tax treatment as a feature. Along with that feature came a range of ‘what happens if’ scenarios, but the offer documents didn’t go far enough into explaining this.
Of course, when one of those scenarios actually occurred, at least one unit holder was not happy! And made a complaint.
FOS’ view was that this particular event was reasonably foreseeable, and that a lot of grief would have been saved if it was spelled out sufficiently in the offer documentation.
So my question for product providers is, what ‘what happens if’ scenarios does your PDS not include that it should? A tricky question I know, you have to draw the line somewhere especially with short form PDSs. But based on my discussion with the FOS, it’s worth reviewing your documents from this point of view.
The second issue, interpreting something ambiguous in the product provider’s favour, also suggests that clearer disclosure in the first place would have helped. If it were clear how a feature worked, then the FOS may well have sided with the product provider.
But if your legal opinion is along the lines of ‘if you squint and look at it in this particular light it says this’, it’s no wonder the client is upset and has gone to the FOS and, potentially, found sympathetic ears. In these cases, perhaps it would be better to just resolve the situation with the client, and then fix the offer document! That might just be cheaper than a whole lot of legal fees in the long run.
The unfair contracts side of things I found very interesting. I have not heard a single financial services employee or lawyer mention it when it comes to offer documents.
I guess we all just think of it as something that applies to old style credit cards and gym memberships! Not so, says the FOS. And not only does the FOS look at the letter of the law, it also considers the principles of the legislation when reviewing complaints.
The FOS explained that what tends to happen is that if the policy/constitution/offer document says that the product provider can do XYZ, then the product provider might choose to hold the line and refuse to concede to the client’s point of view.
Which then means that the complaint ends up with the FOS, which reviews the issue through an ‘unfair contracts’ lens, and the product provider is found wanting.
I have to say, this was probably the most surprising issue raised by the FOS. The idea that if a constitution says you can do XYZ, then you are all good, is pretty firmly embedded in my experience. Time to think differently on this issue!
The fourth issue raised, I must admit, I did find a little bit humorous. Clearly, it’s not so funny if you are the one making this mistake, so be warned! The issue is where a clause is relied on, but the reason for reliance isn’t established. Basically a logic issue.
As the FOS says, ‘where is the evidence to support the triggering of Clause X.XX?’, and if there is no evidence, then that’s the end of your defence. Ouch. Don’t let this happen to you!
And lastly, the FOS looks for a dispute process that is part of ‘the way we do business around here’. Not, as was suggested in the meeting, a dispute team in Antarctica!
If your business can demonstrate that you are listening to complaints, learning from them and integrating those learnings back into the business, then the FOS is much more likely to think kindly of you when assessing a complaint.
In the end, when assessing complaints, the FOS will want to understand:
- What criteria did you use to exercise the clause/discretion in question?
- Was there a clear process, and was it followed?
- How did your business exercise the clause/discretion?
- Why did you make that particular decision?
And most importantly, did you really listen to the client? And did you learn from the experience? Or was the issue just filed away under ‘complaints’ instead of ‘how to improve our business’?
Sarah Penn is the director of Mayflower Consulting.
