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lessons from merging the financial ombudsman schemes

Walter Merricks, chief ombudsman

address to the annual conference of the British and Irish Ombudsman Association, 25 May 2001

the story begins

As long ago as December 1997, ministers announced that there was to be a unified ombudsman scheme. This was to include a number of schemes of varying sizes, going from small to large:

  • The Office of the Investment Ombudsman (6 staff)
  • The Securities and Futures Authority Complaints Bureau (7 staff)
  • The Office of the Building Societies Ombudsman (28 staff)
  • The Office of the Banking Ombudsman (51 staff)
  • The Insurance Ombudsman Bureau (87 staff)
  • The Personal Investment Authority Ombudsman Bureau (138 staff)

A total of 312 staff working from six different sites in London.

Ministers said they envisaged the new body having a governing board, a chief ombudsman and a panel of ombudsmen. In the schemes, there were five serving ombudsmen heading their offices, together with a number of deputy and assistant ombudsmen. Some schemes had both boards and councils. So in total there were 10 different governing bodies who had an interest in the outcome, in addition to the Financial Services Authority itself - the body charged with the task of seeing that the scheme was brought into being.

after over a year...

It took more than a year for the single governing body of the new unified scheme to emerge, and it was only in February 1999 that the Financial Ombudsman Service Ltd Board was appointed by the FSA. It had a number of urgent tasks to address.

The first was how it should approach the premises issue. It determined that the new scheme would need to be located on a single site, in London, and commissioned a search for suitable premises capable of taking up to 400 staff. The new chairman visited the schemes and met staff. Asked where the new premises might be, he said he was looking for somewhere within the Circle Line. When asked the same question in Parliament, before the Select Committee, he said, "Not in Canary Wharf."

The second task for the Board was to determine the scope of the senior management - the extent to which the Chief Ombudsman should have a management role or should be confined to the semi-judicial work of decision making. It decided there should be a Chief Operating Officer as well as a Chief Ombudsman, both should report to the Board, and that the Chief Ombudsman should not be confined to decision making but have the role of chief executive. Job descriptions were issued and public advertisements placed.

By June, the two appointments had been made and by August and September 1999 respectively the Chief Ombudsman and Chief Operating Officer were in post. It became clear to the board that the only premises likely to meet the specification of size, quality and affordability were in London's Docklands. A lease was signed in November 1999 and fit-out work started immediately, with a completion target of March 2000.

An outline management structure was drawn up, allowing for just three case-handling divisions, thus fitting the existing schemes neatly into the structure and permitting the existing teams of case-handlers to be transferred with their structure intact. But new roles were created at senior management level.

by April 2000 ...

Given both the expected delay in the legislation and the model the FSA itself had adopted, the aim had always been that we should effect a practical merger ahead of legal empowerment. This was to be brought about by making service agreements with the existing schemes, under which the Financial Ombudsman Service would become the employer of all the staff, the schemes would contract the duty to handle complaints to the Financial Ombudsman Service, and the schemes would pay the Financial Ombudsman Service for doing the work. Negotiations were undertaken with a target of completing the agreements by 1 April 2000.

On the staffing side, we discovered this merger was not the one covered by the TUPE provisions that guarantee continuity of employment. But we guaranteed a job offer to all who would accept a Financial Ombudsman Service contract and move to the new building. Staff were promised that job offers would be made in the first week of February, with six weeks they can decide whether to accept. Before then, the terms and conditions had to be settled, the management structure completed, a salary structure agreed, every individual had to be "matched" to a comparable job in the new structure, and the documentation on terms, benefits, job structure and individual job offers prepared. In the event, 320 out of 340 staff accepted Financial Ombudsman Service contracts.

Teams of contractors working on the new premises met their deadlines. The new offices were fitted out with 400 work stations equipped with PCs, supported by a robust IT infrastructure.

At the same time, with scant information to go on, we had to construct a budget for the year and seek approval for it from the FSA.

by now...

We are 450 staff. We have completed over 2,000 man hours of staff training on IT, personnel and management issues. We receive 1,000 phone calls from new customers a day, perhaps 300,000 new contacts a year; and 38,000 cases requiring resolution. Largely fuelled by concerns about mortgage endowments, the volume of cases is over 30% up on a year ago. Phone traffic is up by 50%. We have completed the design and commissioning of a new IT case-handling system and this is rolling out across all areas of the service.

We have been "re-branding" all the stationery, complaint forms, leaflets and other documentation to the new Financial Ombudsman style, while retaining a mention where necessary of the fact that we are handling complaints on behalf of the relevant scheme. But legal empowerment (the date on which the legislation is to be brought into force), originally forecast to be around October 2000, is now still at least five months away. It is now stated to be no later than the end of November 2001.

legislation and rules

Our governing legislation, the Financial Services and Markets Act, received Royal Assent in July 2000, as with all such statutes, it provides only a framework. A detailed consultation exercise on the rules governing eligibility, time limits and process was launched jointly with the FSA in November 1999, culminating in the publication of draft rules in December 2000.

A further consultation exercise has been launched on transitional arrangements - what should happen to complaints relating to events that happened before the start of our full legal powers - but which we receive after that date.

Meanwhile the Financial Ombudsman Service continues to operate - technically - as a service provider to the existing schemes.

so what are the lessons so far?

Although it is early days to be drawing conclusions, let alone lessons of general application, there are some observations we can make about what we have done, which those about to go through similar mergers may find useful.

"small is beautiful"

Our experience would be that while the really small schemes had advantages (of service, immediacy and style - but perhaps not of economy), organisations that started as small but had grown to medium sized were struggling to cope. We have seen benefits of size in senior management, systems, human resources and budget flexibility.

We were able to recruit top calibre senior managers with expertise appropriate for the size of the new organisation. Not one of the former schemes had anyone qualified in human resources. There was one qualified accountant, no IT manager with relevant experience, no one with experience of operations management. Few schemes had dedicated training budgets.

We have been able to put our size to work in negotiating with IT and telephony systems suppliers. Our budget allowed us to acquire good quality premises and to negotiate keen prices with designers and contractors.

More generally, with a bigger budget comes more flexibility for coping with the unexpected, for project work, and for underwriting the cost of change.

merger savings and the budget

It is important to have a sound budget - a merger will require investment. There is no point in looking for immediate merger savings. It is more important at the beginning that people feel good about the coming together of the new organisations. Merger efficiencies will come, but should not be expected until year 2 or 3. Commercial companies pretend to get merger savings in year 1, but actually it's just an accounting trick.

We characterized our first three years as Year 1 - "Survival"; Year 2 - "Transitional"; Year 3 - "Payback".

We have survived Year 1, an achievement in itself, and have brought in the service just under the budgeted figure, despite absorbing the cost associated with the rise in complaints business. Our unit cost - measured crudely by dividing our total budget by the number of closed cases, - is now falling after a substantial rise in Year 1 compared to that under the aggregate of the previous schemes (from £650 to £788). We are predicting around £688 in the current transitional year. Next year should see the payback in terms of productivity improvements as our investment in systems and management begins to come through.

Now we await legal empowerment, having put in place almost everything required by the legislation. Firms and complainants will find at that moment that little will change; some of the small print will simply drop off the notepaper.

keeping up the momentum

This was a professionally managed merger, largely masterminded by our chief operations officer, Ian Marshall, who had had vast experience of mergers, takeovers and acquisitions, in both the commercial and the not-for-profit sectors. His experience of organisations, and of what to expect in the merger process, was invaluable.

It was vital to all concerned that we should set realistic dates and targets - and meet them. There were uncertainties enough for staff, for the governing bodies and for others, and it was important to minimise people's concerns and fears by sticking to a timetable, at least in relation to the matters that were under our control.

We recruited a mix of people from the old schemes and from commerce to form the management team. Once recruited, the team was clearly in charge - there was no vacuum. Everyone knew from the start that there was a regular weekly management meeting the very earliest time. And while some affected by the merger were naturally down-hearted, the management team had a positive story to tell and were seen to champion the merger.

cultural issues

One might have assumed that the schemes having started at similar times, handling very similar business, employing staff from similar backgrounds would have developed similar cultures. Each, save one, was, after all, that unusual creature, an ombudsman scheme. But the closer together we got, the more the differences became apparent. The schemes had different styles, values, characteristics, systems - in short different personalities. These personalities no doubt developed in response to the different ombudsmen who had headed them, the differences in governance (voluntary or statutory), and their varying relationship, if any, with regulators and trade associations.

And the attitude to the merger of the schemes, their staff and their governing bodies was different. Some looked forward eagerly, seeing nothing but benefits. Others saw themselves being crudely and compulsorily taken over - "the first act of nationalisation by this government".

So it is not surprising that the creation of a single culture has not happened over night, and will take time to emerge. The fact that the schemes' rules are currently still the legal vehicles through which we operate, and that the staffing structure largely replicates that of the schemes before the merger, contributes to the difficulty. Merely having a common employer and working on a common site does not ensure a common culture. Nor can this be forced. It will take time and some subtlety in management. The fact that we have been joined by over 150 new staff during the past year, for whom the previous office cultures mean nothing, is a great assistance. The process of agreeing, designing and building a common case-handling system has also brought people together in a common endeavour to work in project teams.

I judge how we are proceeding by how people in the organisation talk, how they refer to themselves and the unit in which they work. Is it still "the bureau"? Who is "us" and who is "them"? Is it "we in the banking division" and "they in the investment division"? Or "us in the Financial Ombudsman Service" and "them in the outside world"? Of course, there will continue to be some inter-divisional rivalries - no organisation would be complete without them. And "us the workers" and "them the uncaring management" is familiar to us all.

Those who have survived corporate mergers in the commercial sector (and nearly every financial services firm has undergone one or even two or three in the past few years) will testify to the durability of the different' recognisable cultures that remain in place long after the merger deal has been signed, implemented and consigned to history. We need to build a common loyalty and pride in the Financial Ombudsman Service; without this, both our staff and the outside world would see a fragmented and divided organisation.


No one can have too much of good communications. As I have indicated, this merger did not start well, with a long period between that announcement of the decision and any concrete news. Over two years between the decision and the offer of a job. And the first item of real news for most staff - "not in docklands" - turned out to have been misleading. Initially all the work of the board concerned matters that were confidential - commercial negotiations over property or sensitive personnel matters over senior appointments. It was not surprising that the Financial Ombudsman Service and its board did not have a high reputation among the staff at the time Ian and I found ourselves in post. For many, what was coming was indubitably a takeover by the Financial Ombudsman Service, not a consensual merger based on widely appreciated logic. But however it was viewed, and whatever other uncertainties surrounded it, one thing was clear: it was going to happen. We had to accept that emotional arguments about seemingly uncontroversial proposals were often substitutes for people's wish to express some resistance to the whole idea.

We created a management liaison group to keep the existing managers in touch with developments, to the extent that we could. They, after all, carried day-to-day responsibility, and we would need their help and cooperation, whether they saw their future with the Financial Ombudsman Service or elsewhere.

A representative employee communications forum was established to discuss terms and conditions of employment, the job guarantee, the salary and benefits package. The forum made a real contribution to management thinking. Early on, a proposal on certain employment conditions was put forward which the forum made us realise was ill-judged. We withdrew it rapidly, acknowledging the error. Saving management "face" was less important than getting it right. We even gained some "brownie points" for having listened. So the hammering out of the new terms was a joint enterprise between the existing managers, the new management and the employee forum.

We launched a regular newsletter, Update, with news from management, items from staff, humorous pieces, and merger developments. When the news of the new location could be confirmed (and because of commercial confidentiality this was only possible on the day the lease was signed), I visited every office and spoke to all staff - delivering to them a professionally produced pack detailing the location, its environs, shops, local facilities, travel possibilities. We opened a dedicated website with further descriptions and a question and answer facility, and within a week we had arranged staff visits to the site of the new office.

And when new job offers were finally made, the accompanying documentation terms and conditions, the pension arrangements, benefits package, together with associated literature, was professionally produced and presented.

staff involvement

From the start I decided that the office design should be totally open-plan, with no provision for cellular offices. If there was to be a management hierarchy, at least this would not be designated by superior accommodation for senior managers. Everyone in the organisation, including me, was to have a simple open work-station. There would be a number of small meeting rooms. But for many staff who had worked in cellular offices, the thought of moving to open plan spelled unimaginable horror. Attempts by staff from other offices already working in open plan to reassure them was met with disbelief.

In addressing the style and layout of the premises we used leading specialists in the design of modern workplaces. They arranged sessions with staff to discuss the features staff wanted to see incorporated in our design.

We invited to taff were invited to become involved in the choice of chairs and desks, and to register their views on the preferred desk layout. The height of screens proved the most controversial topic, with irreconcilably divided views. Broadly, for those from a cellular office background the answer was to try to replicate this environment by surrounding themselves with high screens - so even now different floors in our building have different screen heights.

We have held a number of social functions, and a thriving sports and social committee has promoted quiz nights, the Christmas party, an enthusiastically supported rugby team, golf, chess, tennis and a variety of other activities.

benefits for staff

The most obvious benefit for staff in moving to the Financial Ombudsman Service was the prospect of a better career path. Working for an ombudsman scheme is rarely on anyone's career plan. Offering staff the possibility of gaining a wider range of skills was something we emphasised. Indeed, in our latest plan we have committed ourselves to the notion that within three years everyone will have been re-skilled to work within a different or wider job function.

So training that is better and, more professionally organised, planned and delivered was essential, and remains an ongoing commitment. We had appointed a number of people to new manager posts, and we also discovered that many existing managers were in reality performing just as team leaders. So much of our training has concentrated on management skills - recruitment, appraisal, handling grievances and discipline. During the long period of uncertainty, managers had felt disempowered, and some serious under-performance issues had not been addressed. The result has been that some poor performers have left. Of course not everyone who has left was a poor performer. With a larger HR budget at our disposal we have been able to treat genuinely difficult problems appropriately - sometimes outplacement advice, career counselling, or - in a few cases - a payment to help the person leave and adjust to a new career.

Upgrading our IT systems is not just a management benefit. No one working in a customer-facing environment likes battling with antiquated systems and equipment that is liable to break down and for which they constantly have to apologise. People feel proud to work with well designed, modern systems that support their operations and help them give a good service.

business process review

Ombudsman schemes started small, centred simply round an ombudsman seeing complaints and writing decisions. Gradually staff were added to help. More staff were needed to take phone calls and to identify the cases within the scheme's remit. But the emphasis was on what was seen as the end product - the ombudsman's decisions. We have a wider vision of our service. Our end product is the interaction we have with every consumer or firm or journalist or regulator who contacts us. We are in the business of delivering a service to our users, not just decisions to disputing parties. We have at least 300,000 customers a year, not just the 38,000 who need final adjudicated decisions. Firms too have a customer relationship with us.

So in reviewing our process, we started where the major interaction is - with the vastly greater number of those who contact us, rather than concentrating at the end point and working backwards. Seen from this angle, much of the work undertaken in previous schemes was devoted to the negative task of filtering out complaints that were not, or not yet, within remit, while offering little in the way of customer service. Indeed potential complainants or firms with incipient complaints were not seen as legitimate customers at all and simply told to go away. Hardly the way to increase confidence in financial services.

So our emphasis is on what we call "early resolution" - that is taking the earliest possible opportunity to resolve an incipient complaint and nip it in the bud. By engaging with complainants and firms, preferably personally on the phone rather than "hiding behind forms", we can see whether there really is a dispute or merely a misunderstanding that can be put right. If there is a dispute, we can help the complainant to identify and describe it, so that again the firm has a better chance of meeting the issue. And then, finally, if it is not resolved, we can apply techniques of mediation and conciliation before, if absolutely necessary, intervening with our powers of decision making.

are we really independent?

The fear is sometimes expressed that we are simply an arm of the FSA and nothing more. True, the FSA appoints our board, but no FSA representative attends board meetings or seeks to intervene in board business. True, the FSA must statutorily ensure that we are capable of fulfilling our functions and must approve our budget. Here there may be more fruitful ground for tension, and although we have escaped any serious clash, it is already clear that the FSA is more likely to question whether our budget might represent too great an imposition on the industry rather than to urge us to invest more to improve our service to consumers.

Of course, in the areas of direct concern to the FSA - mainly the conduct of investment business - we are bound to liaise closely with them. And in their new area of responsibility for the standard of internal complaints-handling by all authorised firms, we will share a keen interest. But our remit is much wider than that of the FSA, involving us with a broader range of regulatory and self-regulatory bodies across a wider spectrum of the financial services market.

But there are, and no doubt will be, other issues to resolve. How far should we share information with the FSA and they with us? We have set out some general principles in a memorandum of understanding with the FSA, but these have yet to be tested in practice. And how will our statutory duty to resolve complaints on the basis of what is "fair and reasonable in all the circumstances" fit with the FSA's regulatory actions? If the FSA finds it necessary to instruct firms on how to handle complaints arising from a specific area of activity, they proceed on the narrower basis of requiring firms to comply with legal liabilities. It would clearly be unsatisfactory if a firm, having dealt with a matter in accordance with FSA guidance, then received an ombudsman's decision ruling its actions unfair and unreasonable.

are we in danger of losing the personal touch?

It is clear that we have moved away from the notion of the ombudsman as the personal decision-maker involved in every dispute referred to the service, and more towards the notion of the ombudsman as part of an "acknowledged bureaucracy"; away from the model of individual ombudsmen arriving at their own idiosyncratic view, to the existence of a panel of 20 ombudsmen, meeting regularly under my chairmanship to discuss policy matters and accept a collective responsibility to apply decisions consistently. But it is difficult to deny that a designed and structured business process, with different levels of case handlers and an ombudsman committee, all sound like hallmarks of a bureaucracy.

Can we really be flexible and accommodate ourselves to people's personal issues, when such a developed bureaucracy is at work? Our challenge is to make it succeed by combining high levels of service to our users with high standards of applied intellectual rigour in decision making.

And how do we find out what standards of service our users want? By listening to them. We have already started by commissioning initial customer satisfaction surveys, finding out what parts of our process work best and how and where we could improve. Surveying users' views will become part of our regular operations as the years go by. We shall use the results to refine our working methods, and to reveal what those we purport to serve actually want. This is hardly rocket science. Every modern business and public agency providing a customer-focused service is finding it can only work effectively by listening to what its customers are saying. If we begin to lose the personal touch, our customers will tell us soon enough.

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