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We need a better way to deal with bad advice

At our recent Money Marketing Interactive conference, I took to the stage to talk about the evolution of advice into an established profession.

This transition has been borne out by the FCA’s recent suitability review. Notwithstanding some ongoing issues with charging disclosure, the FCA found that in the 1,000 advice files it reviewed, 93 per cent were found to be suitable. As mentioned elsewhere in this magazine, such a high pass rate would be unthinkable in the pre-RDR years.

This is something to be celebrated. But instead the fanfare is muted, because the reality for vast swathes of the advice profession of individuals dedicated to delivering a quality financial planning service is drowned out by the perception of a sector beset by rogues and charlatans.

The reality of advice is lost every single time poor advice is given, every time an unsuitable unregulated investment is sold, and every time a firm is declared in default by the Financial Services Compensation Scheme.

Increasing levies are painful, hurtful and frustrating in equal measure. But as damaging as they are to advisers’ bottom line, they are just as damaging, if not more so, to the perception of advice firms and overall consumer trust in the sector.

The reality of advice is lost every single time poor advice is given, every time an unsuitable unregulated investment is sold, and every time a firm is declared in default by the FSCS.

This week we unravel the case of what happened when one firm amassed a £1m claim bill on the FSCS through the misselling of unregulated investments.

Despite a raft of alternative options to recoup investor and creditor losses, for various reasons the FSCS has ended up as one of the first resorts for redress, rather than the last. The FSCS is footing the bill, which of course translates as advisers footing the bill.

The story is a prime example of just how broken the model is for dealing with collapsed firms which gave bad advice.

Who pays for bad advice? Unraveling an IFA firm collapse

The tiny glimmer of hope in all this is that the FSCS funding review is ongoing, with the FCA particularly keen to dissect the areas where professional indemnity insurance is failing.

This is heartening. But advisers have been clamouring for reform for years. The consultation on FSCS funding reform has been out to the market for six months, and the call for regulatory action long precedes the launch of the consultation in December.

All parties, including the FCA, the FSCS and PI insurers, need to grasp this nettle, and fast. The reputation of the advice profession depends on it.

Natalie Holt is editor of Money Marketing. Follow her on Twitter @Natalie_Holt_MM

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Comments

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

  1. Duncan Carter 8th June 2017 at 1:06 pm

    I think this a good article and would just like add that a trick was missed at RDR when the difference between planning advice and sales was not clarified. We find it difficult as a firm of planners, to see the real need for the unregulated stuff being peddled.

    It can only be commission because at no time in my soon to be thirty year career has any of our clients asked to be placed in silly Cape Verde Hotel, or Dubai Car Park schemes. We do persuade people from time to time that cashing their pension and putting money into an Australian Green Oil scam, Storage Pods or land in Berkshire called Dead Mans Noose that persuasive salespeople are pushing. They’re unregulated for a reason but they’re not giving advice.

  2. Natalie “The tiny glimmer of hope in all this is that the FSCS funding review is ongoing, with the FCA particularly keen to dissect the areas where professional indemnity insurance is failing.” Unfortunately the glimmer is not that bright given the most logical answer to the funding conundrum has been dismissed by FCA – ie a product levy. A reducing number of advice firms will mean that more will need to be paid by the remaining few which will lead to more going out of business leading to the remaining few paying more which means that the remaining few will pay more which means that….and so it goes on. There is so much that is good that is achieved by the FCA but on this point I think it is wrong. The other point that is being missed is the increasing reliance upon robo-advice services. What happens when one of these messes up? And it will. Who pays then?

  3. The future of FSCS funding is bleak if the FINES levied by FCA for poor advice isn’t being used for redress and improving regulations in the industry. I say this because the storm brewing from poor DB transfer advice & Flexi-Access Drawdown advice will erupt in decades to come and may prove too much for the industry to handle on its own. The Treasury’s greed is killing the Goose that lays the golden egg (the financial services industry).

  4. ‘Dealing with bad advice’ shouldn’t be addressed by the funding review, it should be addressed at its root cause – bad advice.

    How you pay for bad advice after the event is a separate issue.

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