In a submission to Cameronralph Navigator, which is currently undertaking an independent review of the FOS, PIS parent company Centrepoint Alliance chief executive John de Zwart singled out the “totally baseless claims” that are made by clients at no cost to themselves.
“As those clients have no financial disincentive to continue with their claim, PIS is often required to settle matters for nominal sums to avoid incurring further FOS fees,” he said.
By settling these “vexatious claims”, PIS’s professional indemnity insurance is inevitably affected, said Mr de Zwart.
“Each additional claim settlement makes it more difficult for PIS to renegotiate the terms of its annual review with its [insurance] broker,” he said.
PIS set aside $10 million for client claims provisioning for pre-2010 advice in 2012/2013 (in addition to $16.7 million that was set aside in 2011/2012).
The submission also called for FOS to provide a calculation of a client’s loss in order to resolve complaints more quickly and efficiently.
“It is difficult for the parties to enter into a meaningful discussion with an aim towards settlement when appropriate loss calculations are unavailable,” said Mr de Zwart.
More claims would be settled at an early stage if clients were required by FOS to provide documentation regarding their investment loss, he added.
PIS also took exception to FOS’ “arbitrary view” on how a client’s risk profile should be assessed – something that the external dispute resolution scheme generally bases on age, said Mr de Zwart.
While a client in their 50s may be an appropriate candidate for a reduced risk profile, “it may be appropriate to place them in a higher risk profile to increase the potential returns of the client leading up to retirement”, he said.
The timeframe within which clients should have their portfolios reviewed after an adviser changes licensees has been a hot topic in the financial advice industry, with FOS ombudsman Alice Maynard suggesting last week that three to six months is appropriate.
The PIS submission pointed to comments from other FOS representatives that suggest that three months or even as little as 30 days is appropriate.
“To protect PIS in the event a claim arises after an adviser transfer to another financial services provider, we now are required to insist on a review period of three months to endure there are no adverse ramifications should a complaint arise at FOS,” said Mr de Zwart.
“It would be preferable if FOS took a position on the review of clients when a transfer occurs more in line with standard industry practice,” he added.
