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FSCS boss: Scrap limit on advice misselling payouts


The £50,000 compensation limit for negligent advice should be scrapped, according to Financial Services Compensation Scheme chief executive Mark Neale.

In a blog this morning, Neale said that while instances of bad advice were “few and far between”, protection needed to be in line with retirement savings held in insurance products to give consumers more confidence in the system.

There is currently no limit to compensation available for retirement savings held in insurance products, allowing consumers to reclaim 100% of their losses if an insurer or provider goes bust.

However, if an advice firm enters administration, the lifeboat fund can only pay out a maximum of £50,000 to anyone mis-sold investments.

Neale says: “There is little logic to protecting retirement savings in insurance products without limit, but to restrict protection for mis-selling to £50,000.  This is confusing for consumers and corrodes confidence.

“And it leaves consumers with retirement pots in excess of £50,000 in a quandary because it makes no sense to break the pot up for the purposes of seeking advice. An adviser needs to see the full picture.”

Neale adds: “I can see a sound case for harmonising retirement savings limits. This has the support of MPs with 60% supporting harmonisation according to our research.”

The way the FSCS is funded is currently under review, with a consultation paper due this Autumn. According to sources familiar with the review, options being discussed include capping fees for smaller firms, making providers contribute more and taking unregulated investments out of FSCS coverage.

Neale said that how negligent advice was protected should also feature in the review.

Neale says: “Instances of bad advice are few and far between, when they do occur they can have a devastating impact on retirement savings which take a lifetime to build up.  We see that now with Sipp-related claims arising from advice to transfer retirement savings into a Sipp and then to invest in illiquid and risky assets.

“That’s why I believe it is right to take a fresh look at the level of FSCS protection for negligent advice – currently £50,000 – as part of the current FCA review of our funding.”


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. I don’t disagree with Neale on this ( i always felt this was a bit silly), however, we do need some joined up thinking with our PI insurers or as I have suggested before ditch PI all together and just fund the FSCS !

  2. Joined up thinking needed 28th September 2016 at 4:39 pm

    Reform is needed. Let’s have mandatory terms on PI cover so that firms that go bust are not walking away from the liabilities, the PI firm picks up their insured complaints instead. The FOS can cover the insurance excess on each claim and the rest of us will fund only that element.
    If the PI firms had to cover liabilities arising from advice they “insured” while the firm was trading, we might see a bit more scrutiny on the “phoenix firms” than currently exercised by the FCA. We’d also see fewer firms able to secure PI cover for unregulated or esoteric activities.
    I think the PI firms might do a better job than anyone else in excluding the crooks if they are on the hook for the cost. The fall in FOS fees will pay for the increased PI costs for “vanilla firms” and the much higher PI costs for anyone involved in selling “rubbish” at least provides some pre-funding.
    The FCA can monitor the cover in place and ensure anyone involved in selling UCIS etc has appropriate cover.
    Hey presto – no limit on FOS claims and the gangsters pay the PI firms to clear up the mess they leave behind.
    Sounds much too simple….

    • I am more incliend to argue for a product levy like Harry and for exclusion of UCIS from FSCS advice cover too so that anyone advising a client to take it out has to have PI insurance to cover it and if not make it a criminal offence.

  3. This is the compensation culture gone nuts. This just doesn’t encourage any client to do their own miniscule due diligence. People should be encouraged to take some responsibility. A second opinion should help here. If they have in excess of £50k they should jolly well pay more attention and take a little effort in understanding what they are doing and what is proposed.

    There is of course a difference between poor advice and a criminal act, which should be fully compensated – but not necessarily via the FSCS. Heaping more onto the advice sector to fund this organisation is just madness and will ultimately further reduce the availability of advice. Now is the time to stop being stubborn Mr Neale and institute a product levy. As I have so often said in the past there should be no barrier as all other sectors already have what amounts to a product levy. Insurance premium Tax and Stamp Duty are nothing more than a product levy – that the proceeds go the Government is beside the point.

  4. I agree that there shouldn’t be a limit on the compensation amount for investments.

    However before such an increase can occur we need to have a robust regulatory system that is fit for purpose not the bloated, growing and ineffective regime that we currently have.

    We also need to resolve the scandal that is the current FSCS funding system.

    I hold little hope that the FSCS review will result in an equitable system of funding this important consumer protection.

    The interaction between PII, firm capital adequacy and FSCS levy just seems very odd

  5. All very well, but as the man at the top I would have thought that he would have also added some ingredients to his begging bowl!!

    Heads for the money tree to collect some more fruit!

  6. As always, it is easy to spend somebody else’s money.

  7. Agree with Nick Bamford. If only the FCA would get its act together by way of identifying and homing in on adviser firms selling ultra-high risk, inadequately researched toxic junk, often with out adequate PII cover, the volume of liabilities falling on the FSCS would reduce massively in a very short space of time. But this would require a number of things to happen:-

    1. The FCA would have to admit that it’s present regulatory methodology is a crock of sherbert.

    2. It would have to undertake a complete redesign of its RMA Reporting system.

    3. It would have to undertake to actually examine the contents of firms’ returns (not difficult if the system were designed to flag automatically certain specific areas of business to which priority attention could then be given). And

    4. It would need to create a special permissions category for any firm wishing to advise on a range of acknowledged off-piste investments (including proof of adequate PII cover).

    It seems so straightforward, doesn’t it? So why doesn’t the FCA just GTF on and do it? Post your answers here.

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