Financial Services Compensation Scheme chief executive Mark Neale has come to the defence of IFAs’ recommendations, but warns that supplementary levies for the lifeboat fund will be required as long as consumers are allowed to choose high-risk products from bad advisers.
He notes that since the freedoms, fears that consumers would immediately spend their whole pot have rarely materialised.
Neale writes: “People are not, for the most part, acting imprudently. Many do seek professional advice about the investment of their retirement savings. The great majority of regulated financial advisers give conscientious and good advice.”
However, Neale notes the importance of the FSCS backstop when advice does go wrong.
“It is very important that consumers understand that FSCS does not protect them against ordinary investment risk knowingly taken on. But, equally, there is a risk that investors will be deterred from seeking independent financial advice if unaware that FSCS will protect them against mis-selling in the event that a regulated advisor fails.
“Choice does, inevitably, carry risk and even in a well-regulated market people will occasionally be mis-advised to make imprudent investments. That is why FSCS protection needs to be there.”
Neale says that the recent growth in Sipp related claims from advice to transfer into risky and illiquid assets like storage pods and tropical forestry, exemplified the importance of that protection.
Last week, the FSCS announced it would have to levy a supplementary £24m for such claims. Breaching the limit for life and pensions advisers, the bill will have to paid by other parts of the industry that serve retail clients.
Neale writes: “This is not, I acknowledge, especially palatable news, but it is the price we pay for greater choice. Choice gives welcome flexibility to invest retirement savings in ways which reflect consumers’ risk appetite and preferred life style. Those choices are mostly exercised prudently. But we do need to protect consumers, who cannot readily replace their retirement savings, against occasional examples of bad professional advice.