Financial Services Compensation Scheme chief executive Mark Neale says removing the £50,000 compensation limit for poor advice could encourage more consumers to use advisers.
In a blog last month, Neale argued that protection for bad advice needed to be harmonised 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.
Speaking to Money Marketing this week, Neale defended his call to remove the £50,000 limit.
He says: “We know that one of the things that deters people seeking advice is how much they claim back on the advice if the advice turns out to be bad. Our research shows that very clearly. The FSCS in that respect is part of the solution.”
Neale adds the market would also benefit from greater simplicity.
He says: “The position at the moment is an unsatisfactory one. We now have people at retirement age with much greater freedoms about how to use their retirement savings, but facing very different levels of FSCS protection depending on what they do.
“If they buy an insurance wrapped product like an annuity they do have unlimited protection. If they go and seek advice – which is what we want them to do after all – they only have protection up to £50,000. Investment products are only up to £50,000.”
“The point we have been making – and I’m not sure it should come as a great surprise – is we need to look at that in the context of the new retirement savings because it is not simple for consumers.”
The way the FSCS is funded is currently being reviewed by the FCA, which is due to report by the end of the year.
Neale says there is no front-runner proposal for reform, but says he would like to examine professional indemnity insurance after the review.
He says: “I don’t think any particular issue has gained or lost momentum. The issues are still the ones we have discussed in the past.
“From my perspective we need to look at PI. It’s not doing the job it should be.”
The Financial Advice Market Review recommended the FCA use the FSCS funding review to decide whether or not a separate review of the PI market is warranted.
Neale adds: “I don’t think we have seen anything particularly new that would change my view. It remains the case that many PI policies are simply not providing the protection they should.”