Advisers have attacked FCA Consumer Panel chair Sue Lewis for branding the long-stop a “red herring” in the debate about how to widen access to advice.
Lewis made the remarks on BBC Radio 4’s Money Box as she spoke about the Government’s Financial Advice Market Review.
The review, formally launched last week, aims to improve access to advice. As part of the review the FCA is consulting on whether to introduce a 15-year limit on claims against advisers.
Asked whether the long-stop could help to address the advice gap, Lewis said: “The long-stop is actually a little bit of a red herring. [The ability to complain] needs to be there because of the long-term nature of some products. There may be other ways of pooling the liability but it needs to be there.”
Highclere Financial Services partner Alan Lakey says the comments are “unhelpful”.
He says: “There must be a recognition that the financial services industry is a different creature to that of 20 years ago.
“The old chestnut about the long-term nature of products falls apart under scrutiny. First, consumers should take responsibility if they fail to understand or review their various plans. Secondly, many other occupations which deal in long-term advice or services have a 15-year long-stop.”
Yellowtail Financial Planning managing director Dennis Hall adds: “Sue Lewis has a vested interest in looking after consumers, but we cannot dismiss this as a red herring.
“The lack of a long-stop is one of a number of issues which impacts on access to advice. It affects succession planning and whether we can get new blood into the profession. Young people will not be willing to have liabilities hanging over them for the rest of their life when that is not the case in any other profession.”
Personal Finance Society chief executive Keith Richards, also speaking on Money Box, said: “Advisers are the only profession which carry unlimited liability for their advice.
“There is no question that the long-stop should be brought back in. The law was changed [from] when lots of 25-year endowments and whole of life policies were sold, so [ending the long-stop] was done for a fair reason but that now needs to change.”
Lewis argued that simplified advice or simplified products were the key to improving access to advice.
She said: “The trick we’re trying to pull here is to simplify and make advice more accessible and cheaper for consumers with relatively small amounts of money.
“You might look at what I think of as the pharmacy model: you can speak to a pharmacist, get some advice and they can sell you a limited range of products.”
The FCA’s long-stop options
The FCA says it is considering the following options as part of its long-stop consultation:
- Maintain the current regime
- Introduce a long-stop of 15 years or a different time period “recognising the long life of financial services products”
- Introduce varied limitation periods linked to the terms of products
- Strengthen professional indemnity insurance so advisers have sufficient cover to meet long-term claims
- Set up a compensation fund which all advisers contribute to and which would pay out in the event of a justified claim older than 15 years
The long-stop: The story so far
1980: Limitation Act imposes time limits within which a party must bring a legal claim, including a 15-year long-stop for negligence claims
2000: Financial Services and Markets Act introduced. Regulators say this overrides time limits of Limitation Act
2007: FSA reviews the case for a long-stop
November 2008: FSA announces it will not introduce a long-stop
March 2014: In its 2014/15 business plan the FCA says it will consider the case for a long stop
July 2014: FCA says talks have stalled as the long-stop may be deemed a constraint on human rights under an EU directive
December 2014: FCA confirms the EU directive would not stand in the way of a long-stop