From next month Claims Management Companies (CMCs), to give them their correct title, serving customers in England, Scotland and Wales must be authorised by the FCA to continue to operate legally.
So far 629 have registered, a number that has surprised many even though it shouldn’t.
With the PPI deadline due this year the claims management sector has become a major industry. Hundreds, if not thousands, work in CMCs. They spend millions on advertising and use celebrities to endorse them.
With the PPI gravy train slowly heading into the sunset they have lots of hungry mouths to feed and the financial advisory area is ripe for pickings, or at least they think it is.
Many SIPP providers are already becoming anxious about the threat and some have already received attention from the CMCs. I’ve also heard radio ads in London and seen ads in newspapers from CMCs asking clients disgruntled with their investments to get in touch.
For all decent planners with their paperwork in order there will be little to worry about but there will no doubt be vexatious claims and even decent planners may suffer unnecessarily.
On the positive side, the FCA’s move to authorise and regulate this sector is a powerful message that the government will not tolerate nonsense from the CMCs.
Even so, the FCA will need to be on its toes in ensuring that the CMCs play fairly and avoid showering pointless and questionable claims on what are still mostly small and medium-sized financial advisory firms. The consequences if this doesn’t happen could be damaging.
I sense, however, that we are seeing something of a shift back towards caveat emptor when it comes to investment and pension products. Consumers have an obligation to understand what they are investing in.
It’s only right that clients with legitimate complaints have the right to seek redress where they have genuinely lost out and complaints should be properly investigated but the view that consumers are always the aggrieved party is a wrong one. Consumers whose investments underperform are just unlucky, not necessarily victims of near-criminal behaviour. Taking a risk on an investment means sometimes you lose out.
It’s worth remembering that while the banks have been soft targets for PPI claims and many had little to defend against, the world of investment is far more complex and will need a different handling completely.
My money is on advisers putting up a pretty robust defence against any CMCs. We should also remember that with the Financial Ombudsman Scheme and internal complaints procedures in place there is already a comprehensive structure to deal with most complaints and grievances so CMCs may find it hard to pick up clients.
The CMCs will find advisers and SIPPs firms much harder nuts to crack.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with over 30 years of experience. He previously worked for the Financial Times Group and in daily and weekly regional newspapers.
• PS, I’m taking part in a sponsored 10k all night walk in Manchester to raise cash for a local hospice which provides outstanding care for terminally and serious ill people. There's a godo reason why I'm doing it. Find out why and help out, if you can, here: bit.ly/2Er343F