Dissatisfied investors face confusing time

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The Independent Online
DISSATISFIED investors face a confusing autumn and winter as the newly established Personal Investment Authority gradually takes over from Fimbra and Lautro the task of regulating financial advisers and investment companies.

The PIA is a controversial last-chance attempt to make self-regulation work in the financial services industry. In theory, it should herald a simpler regulatory regime.

Many investors have been baffled by the number of organisations - and the proliferation of acronyms - created by the Financial Services Act. The PIA's launch will eventually lead to the abolition of Fimbra (the current regulator for independent advisers) and Lautro (the regulator for life assurance and unit trust companies). For the first time most financial advisers, tied sales agents and investment and insurance companies will be overseen by one organisation.

However, the PIA is running in parallel with Fimbra and Lautro. Financial advisers and insurance companies have been slow to apply for PIA membership, and the PIA has been slow to vet them (the authority says that, out of an expected membership of 5,500 to 6,000, 3,840 applications have been received and 1,321 so far approved). So at present, there are three separate organisations formally responsible for overseeing companies, and three separate procedures for dealing with complaints about investments - a state of affairs likely to last well into 1995.

The PIA's own complaints procedure came into operation on 18 July, but it applies to companies only from the date they are admitted to PIA membership. The PIA has told companies to keep records of earlier complaints separate.

The first task for anyone wanting to complain about an investment, therefore, is to ascertain whether PIA rules apply. This will not necessarily be clear from a firm's literature - confusingly, PIA rules allow its members to use old stationery and publicity referring to Fimbra or Lautro until next April. Advisers and investment companies are unlikely to notify customers individually when they join the PIA.

The PIA's new free leaflet, How to Complain, recommends that investors check a company's current position either with the firm itself, with the SIB's central register (on 071-929 3652) or the PIA consumer help desk on 071-538 8860. A more difficult question is whether complaints will be dealt with more efficiently or favourably by PIA procedures - meaning it may be worth waiting for a firm to join the PIA before filing a complaint.

Lautro and Fimbra have suffered from much public criticism for the way they regulate their members. For example, the action group set up by dissatisfied clients of the advisers Knight Williams has been almost as critical of Fimbra's handling of their complaints as of the firm's original advice.

Unlike Fimbra, the PIA specifies a time limit - two months - within which investment firms or advisers are expected to respond to individual complaints. If people are unhappy at the response they get (or if they are told by the company that it needs more time to complete an investigation) they then have the right to contact the newly established PIA Ombudsman's office. The Ombudsman is Stephen Edell, previously the Building Societies Ombudsman.

However, the scheme he oversees is controversial. The outgoing Insurance Ombudsman, Julian Farrand, who formerly dealt with many investment disputes, has strongly criticised the PIA Ombudsman's pounds 50,000 limit on mandatory awards (his own limit was pounds 100,000).

The PIA Ombudsman will not take up cases involving firms regulated by Fimbra or Lautro at the time the complaint is first made. Fimbra has its own leisurely arbitration service, while Lautro ultimately refers people to the Insurance Ombudsman. The plethora of ombudsmen creates more confusion for the public - something Mr Edell accepts as probably inevitable in the short term. 'Ombudsmen schemes have been growing like Topsy. There are bound to be problems during the transitional period, whilst people are still joining the PIA, but when that's finished I think it will be simpler,' he says.

This remains to be proved. Mr Farrand will resurface as the Pensions Ombudsman, potentially overlapping the PIA Ombudsman role on personal pension disputes. ('I think under my terms of reference they come to me,' says Mr Edell.)

Meanwhile, the Insurance Ombudsman will remain to consider non-investment insurance business. To add to the confusion, the so-called Investment Ombudsman will continue to deal with complaints against members of Imro, the Investment Management Regulatory Organisation.

(Photograph omitted)

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