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.”