Advisers are optimistic on the introduction of a long-stop after the FCA announced it would consult on the issue as part of the Financial Advice Market Review.
In a consultation paper on the FAMR jointly published by the FCA and the Treasury earlier this week, the regulator says it will evaluate the options around implementing a long-stop.
The FCA says it will consider the following options: maintaining the current regime, introducing a long-stop, introducing varied limitation periods linked to the terms of products, strengthening professional indemnity insurance, and setting up a compensation fund.
It says the long-stop could be for 15 years, or “a different time period recognising the long life of financial services products”.
The FCA says enhanced PI cover for advisers would include cover sufficient to meet claims relating to long-term advice, whether the firm is still in business or not.
The compensation fund would pay out in the event of a justified claim older than 15 years against an individual firm, which all firms would contribute to. However, unlike the Financial Services Compensation Scheme, the fund would not require the firm to be insolvent before paying out.
Apfa director general Chris Hannant says the inclusion of the review in the FAMR increases the chances of a positive outcome for advisers.
He says: “The FCA recognises the challenges of unlimited liability for advisers, but has also been cautious of its statutory duty to protect consumers. The FAMR and its emphasis on benefiting consumers beyond those who can currently afford advice means there is a stronger will to make changes.”
Evolve Financial Planning director Jason Witcombe adds: “The FAMR makes change more likely as there seems to be a recognition that a solution must be found. It is not reasonable that advisers have to live in fear of complaints throughout their retirement.”
Hannant says a 15-year long-stop is by far the most preferable option, and a compensation fund would only spread the cost of liability rather than reducing it.
He says: “We feel very strongly that unlimited liabilities are a deterrent to investment in the sector and increase the cost of advice.
“There is also a fundamental question of justice. I recently had a call from the daughter of an adviser who had passed away and whose wife – who had been made a partner in the business but is now suffering from Alzheimer’s – is being pursued for an ombudsman complaint for advice given well over 15 years ago. There is no way the family can construct a meaningful defence to that claim.”
The regulator said it would consider the case for a 15-year long stop on complaints to the Financial Ombudsman Service in its 2014/15 business plan, published in March 2014.
Talks were delayed after the FCA pointed to an EU directive as a barrier to progress. But in December the regulator confirmed the directive would not stand in the way of a long-stop.