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Aifa and Zurich kick-start debate on long-stop options

Chris Hannant 480

Aifa and Zurich have set out a range of proposals to address the lack of a long-stop for financial services including “customer-agreed liability” which would cap liability at different stages of the advice process.

As part of their Fair Liability for Advice campaign, the trade body and the insurer have published a report on how to tackle the issue of uncapped liability for financial advice. The report draws on discussions with industry and policymakers, and research with 2,439 consumers and 279 IFAs.

Of the consumers polled, 42 per cent had received financial advice, and among those 76 per cent believed there should some kind limit on liability.

Aifa and Zurich have put forward four ideas to introduce a cap on liability for advice.

The first is introduce a 15-year long stop through an amendment to the Financial Services Bill, which is due to be scrutinised in the House of Lords next month. Money Marketing revealed last month an amendment is to be tabled in a bid to secure a long-stop for financial services.

If this is unsuccessful, other options have been proposed which could be implemented through current FSA rules or through future Financial Conduct Authority rules.

The second option would be different liability limits depending on the nature of the investment, such as a 10-year limit on short-term investments of up to five years through to a 20-year limit on long-term investments spanning over 15 years.

The third option, “customer-agreed liability”, builds on the idea of customer-agreed remuneration under the RDR. The concept would effectively “stop the clock” on advice given after a certain point, such as at the end of the accumulation phase, where the customer agrees they are satisfied with advice up to that point. The liability would then “restart” with the next phase of advice.

The fourth option would see advice subject to a 15-year liability limit, but this limit would be extended from the last financial review, effectively a kind of “rolling liability cap” on advice based on the most recent review.

Aifa policy director Chris Hannant (pictured) says: “The FSA’s rules on liability are out of step with UK law, which is where the problem lies. We just want UK law to be applied to UK financial services, and we do not think that is too much to ask.”

Hannant says the knock-on impacts of not having a capped liability on advice include the inability to attract investment in the sector, and the challenges of running a business and securing professional indemnity cover without some kind of liability limit.

He adds: “In terms of next steps, the issue is set to be debated in the House of Lords. If this is unsuccessful, Aifa and Zurich will pursue this with the FCA. It is incumbent on the new regulator to take a fresh look at this issue, particularly in light of its statutory objective to make markets function well.”

Zurich UK Life intermediary sales director Richard Howells says: “No other institution or industry would every vote to have uncapped liability. This is about parity and fairness. We are not arguing that introducing some kind of cap would somehow be detrimental to consumers. In fact our research shows strong consumer support for some kind of limit.

“The RDR is a perfect point in time in which to bring this in.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. The only debate that is necessary is; Why is the FSA allowed to act outwith the law?
    Furthermore why do they not practise what they preach and deny themselves a long stop?

  2. This is crucial to (I would love to say the continued success of the industry but that would be a bit much) rebuild the previous success of our industry. We can but hope that this is taken on board and the Lords see fit to bring our profession in line with UK law. I dont accept the FSA’s arguement that the long stop will cause consumer detriment.I dont care how good an adviser is at trying to cover up bad advice he or she gave, anyone who is still breathing would be able to tell by 15 years in to a polciy that the advice was bad. If they kept it going for that long they should be deemed to have been happy with it from outset. We should righfully be liable for bad advice but clients MUST take some responsibility in the process.

  3. The cheapest and quickest option is a one way ticket to Rio.

    Just take a few Portugese lessons first.

    Better climate, better prospects.

  4. Interestingly, AIFA did not ask me for any viewpoint. Nor did they contact Derek Bradley, Derek Gair, Steven Farrell, Simon Mansell, Julian Stevens, Evan Owen or Derek Bull.

    All of us have been fighting for the return of this inalienable right for years. We were fighting when Chris Cummings was too scared or inadequate to raise his head above the parapet. Wwe were fighting when Stephen Gay opted to jump ship rather than confront.

    As Adviser Alliance and previously IFADU we fought to bring back certainty and fairness.

    If AIFA had asked for my input I would have told them that compromise is what you accept when you are wrong. You fight for the return of a stolen defence when you are in the right.

    The longstop was stolen from the industry. FSMA made no mention of a longstop and on this nonsensical basis the FSA determined that it was Parliament’s intention that it should not apply. The FSA has refused sight of the legal opinion asserting this.

    FSMA failed to mention many other acts of Parliament yet these continue to be observed. The FSA has confirmed that it is not able to override statute so its action in ignoring the longstop when formulating the dispute resolution rules.

    AIFA must think again.

  5. I know it may be a bit radical but why not just apply the law as it applies to everyone else. FSMA created an artificial scenario which for some reason is now seen as sacrosanct.

    This coupled with the debacle that is FSCS and the arbitary rather than arbitraton based FOS are alien to evidence based, English law.

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