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ABI needs a sense of balance

The Association of British Insurers believes everything is hunky dory with the Financial Services Compensation Scheme.

It would like to see the status quo maintained, an option described as the worst possible one by Aifa.

The ABI also says many of the problems with the scheme arise because of the lack of sufficient capital in adviser firms.

How can one argue against the ABI’s position? Surely, it is time for IFAs to stand on their own feet?

Money Marketing believes steps should be taken to ensure adviser firms are better capitalised. Some IFAs want this too. But to adopt a hard-line stance on this now would be to push many more firms over the edge. It could risk something of a meltdown in the short term and even more firms falling on the scheme.

We could suggest that any sharing of the burden is in providers’ best interests. But if they accepted this argument they would never have withdrawn the cross-subsidy in the first place.

Instead, we suggest that providers should share part of the burden.

The rationale for this is simple. Many of the problems with misselling or indeed problems with ombudsman awards in which advisers cannot disprove misselling, should be situations in which providers shoulder some of the responsibility.

The courts are just beginning to accept this although it will be far too late to help a whole raft of adviser firms.

To get into detailed arguments is difficult. It is almost impossible to say which IFAs who misadvised on endowments are wholly to blame, or which providers overcharged or underprojected.

It is difficult to know which adviser firms sold or marketed products carelessly and should have know better in complete isolation from providers and which had the wool pulled over their eyes about what the products did.

It is never easy to strike a correct balance of responsibility. But in trying to get out of helping with the compensation scheme, which hurts IFAs so much more as a percentage of turnover than any insurer, the ABI’s members want a massive imbalance to continue. The status quo is unacceptable.

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