Written by Morven Grierson on Monday April 23, 2012
We have all been on the receiving end of claims management companies (CMCs) offering to help you claim for an accident at work or car accident which wasn’t your fault. In fact if you watch daytime TV or listen to local radio, you will find that every second advert is one of those firms, usually endorsed by a well known celebrity to promote confidence in their services.
Unfortunately their remit has changed in recent years and we are seeing a rapid rise in claims in the UK financial services industry, Payment Protection Insurance (PPI) claims being the most common. The Financial Services Compensation Scheme (FSCS) reported in January 2012 that over three quarters of PPI claims were made through claims management firms and the Financial Ombudsman Service (FOS) has requested that the Ministry of Justice (MOJ), who regulate these firms, improve standards, following a raft of poorly drafted submissions. Their methods in getting your clients' attention vary, from cold-calling to text messaging and emails posing as other investors.
As a provider of financial advice, if your client appoints a CMC to act on their behalf, you are likely to receive a request for information, such as suitability reports and KYC collected on your client. With or without this information the CMC may proceed to make a number of allegations against you, whether founded or not. These allegations are usually derived from FSA findings from thematic reviews.
We may not like their approach or their standards but it appears these firms are here to stay and they can present a real risk to your business including damage to your reputation, increased costs and resources required to defend a claim.
How to manage the claims management risk
It goes without saying that a robust advice and suitability process are key to protecting your firm against complaints. Gathering in-depth KYC information prior to giving any advice is the only way to understand whether a product is suitable or not and will justify your advice to the FOS if the complaint was to get to that stage.
Be pro-active – These firms usually react to FSA findings or concerns. So keep abreast of what the FSA are saying through their thematic reviews, speeches, enforcement actions and through reports such as the Retail Conduct Risk Outlook and Business plan. The PPI review and the subsequent ruling against banks and other organisations to pay compensation has triggered many of these firms to offer your clients this service. Other cases include UCIS, Structured Products and regulated collectives. If you are advising in these areas be sure to have strong risk management controls in place.
Strong relationship with your client – The relationship you have with your client may determine which route your client takes if approached by a CMC. Strong service levels and communications will hopefully mean your client will come to you if approached by one.
Keep your Professional Indemnity informed – not informing your PI of potential or actual complaints may invalidate your cover. Keep them informed at every stage and take their advice on how to respond to the CMC, it is likely they will have come across these firms before.
Ensure your product research, KYC and suitability procedures are up to scratch – are you confident you can defend a complaint if you have received one? Strong procedures and controls in these areas are key to ensuring your protect your firm and will ensure you have the best chance of evidencing your case.
Effective complaints process – This should set out how you will help your client in the event of a complaint and hopefully give comfort that you will take a client’s complaint seriously and avoid the need for them to get a CMC involved.
Carrying out root cause analysis for all ‘expressions of dissatisfaction’ will help you make improvements and avoid future complaints.
Don’t panic - Your first reaction if you receive a complaint from a CMC may be to send your full case file on your client over. Before you send anything, ensure that this firm has the authority to obtain this information from you, such as signed letter of authority from your client.
Treat this type of complaint as you would any other, remember the CMC is acting on behalf of your client and you are still obliged to treat them fairly. Ensure your response is well thought out and structured providing the CMC with a clear audit trail of events leading to the recommendation made to your client and support this with the relevant paperwork.
Also check for errors and inconsistencies in the information you receive from the CMC, they often send complaints out in mass, using cut and paste methods, which may lead to allegations against you that do not apply.
And finally, remember your clients don’t have anything to lose using a CMC, you do!
Recommended further reading
Claims Management Companies and Financial Services Complaints
Morven Grierson is a professional member of the ICA and a Compliance Manager at S4 Financial Ltd
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