Decades ago, the philosopher Bertrand Russell observed that there was a small teapot orbiting our planet. He couldn’t prove it, he said, but in his illustration of the futility of sensible debate where one party refuses to admit the facts, I can see a connection to a current concern of mine.

Mr Russell’s bogus teapot argument hinged on the overwhelming balance of improbabilities and common sense. Perhaps those of you who have had recent dealings with the Financial Ombudsman Service (FOS) will see the connection. If my business needs to defend itself against a complaint we believe is unwarranted, we would expect the FOS to do “what it says on the tin”, as it were. So let’s remind ourselves what the tin says: “When we decide cases, we do so as an alternative to the courts..... We follow a fair process, giving equal consideration to the evidence and arguments provided by both sides – and then we decide.”

Unfortunately, the practice appears not to live up to those principles, in my experience, which brings me to the case that has been vexing me for nearly two years now. The very short version of which goes as follows: advised by us, ‘Bob’s Sipp invests in a unit trust operated by Company A. Later, Company A plans to close the trust, but doesn’t tell Bob or his Sipp (the legal owner of the units). Their sales consultant tells us that closure is planned for the future and promises to confirm specific details. We receive nothing. Nor does Bob, nor his Sipp. Bob is the ‘last man standing’ in the unit trust and bears huge administration costs.

Company A says it sent us a letter with relevant information, but it was never received. A copy of the letter finally arrives after Bob’s losses have been incurred. The letter does not contain relevant information; it simply states that the unit trust is switching its investments to cash. Bob complains to Company A which rejects his claim so Bob complains to the FOS.

So, where are we? Company A believes it has transferred its obligations to inform Bob to us; we believed we were entitled to wait until information about the changes was delivered to us as promised. Bob is unsure who is responsible, but he’s certainly lost money. The key is understanding which party was obliged to communicate what, to whom and when. Happily, all of that information can be found in a single place; the FSA Handbook’s COLL/4 where Company A’s obligations to notify Bob’s Sipp are clear.

Applying those regulations to the case, Company A failed to advise the legal owner (or anyone else involved) of the significant changes afoot, and was therefore in breach of its regulatory duties. Applying common sense to the case, Company A’s attempts to communicate were inept. Had they advised us of the client’s identity and of the relevant timescales we would have taken action and Company A’s breaches would have gone unnoticed.

When Bob complained to the FOS, he believed they possessed the necessary expertise to unravel the strands of the case, identify the relevant regulations, and quickly adjudicate.

However, the FOS adjudication blamed us. We were horrified. And that was the bit of the letter we could decipher! The rest was an incoherent ramble down various error-filled dead ends. In our view, our adjudicator was evidently out of his depth with no understanding of the relationships, duties and responsibilities which were so crucial to delivering a fair outcome. Bob appealed, putting numerous sensible points and questions to the FOS and asking for clarity on the initial adjudication.

The appeal was brief; it supported the original adjudication out of hand, failing to answer any of Bob’s questions. Bob appealed again. The final adjudication again supported Company A with nothing added to the deficient explanations previously given, apart from one short and instructive comment. The ombudsman has,“not seen indication that [Company A] had a contractual duty to inform your Sipp of the impending closure of the fund”. Clearly, he had not looked at the section of the FSA Handbook mentioned above. A disturbing oversight.

Rounds of correspondence with the Interim Chief Ombudsman failed to shed further light and Bob’s questions still remain unanswered because, once a final adjudication has been issued, the file is closed, even if it is evident that the outcome is not fair, balanced or competent. Bob knows he can take legal action, but does not believe the cost is worth the risk. He is an intelligent man, and is bewildered by the refusal of the FOS to substantiate its adjudication in terms either he or we can understand.

So, lessons learned? Don’t assume that the FOS will engage in sensible, grown- up dialogue with the complainant. Expect ‘legalese’ and ‘gobbledegook’ aplenty, but not necessarily expertise, in their adjudications.

Expect, nonetheless, comforting messages from them about ‘fairness’ and ‘the facts’. If the Ombudsman tells you a flying teapot is orbiting Earth, don’t argue with them or ask them how it got there. Just believe. 

Gregor Johnson CFP^CM

Gregor has 22 years‚ experience in financial services, 18 of which have been as an independent financial adviser. Throughout that time he has dealt with professionals and high net worth individuals. He is a director of Fitzallan Limited and provides personal Financial Planning advice in most areas. Gregor is Certified Financial Planner^CM professional, an Associate of the Chartered Insurance Institute (ACII), a Chartered Financial Planner, a Fellow of the Personal Finance Society (FPFS) and also holds the STEP Certificate in Financial Services.