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FSCS chief: We must do better on investment advice claims


Financial Services Compensation Scheme chief executive Mark Neale has admitted the organisation must do more to establish whether or not intermediated investment losses were caused by bad advice.

In his latest monthly blog, published last week, Neale says the FSCS continues to be challenged by the complexity of many failures in the investment intermediation sector, of which he says Catalyst is just the latest.

Neale says: “In order to compensate, the FSCS must establish that a failed business had a liability to the investors advised by an intermediary. But it is often far from straightforward establishing whether an investor’s losses were caused by bad advice or by some other factor – fraud, for example – which the IFA could not readily have foreseen.

“And even once a liability has been established; it can be difficult to quantify the loss where the underlying investment was in an illiquid fund.”

He adds: “These are not excuses. We need to be better at anticipating these issues and addressing them earlier.”

Advisers recently expressed anger over the announcement by the FSCS that a £29.5m interim levy would be imposed on investment advisers following the failures of life settlement firm Catalyst and stockbroker Fyshe Horton Finney.

This is on top of a £78m annual levy on investment advisers for 2013/14.

Many argue the system is unfair as it requires advisers to pay for compensation resulting from failures other than bad advice.

Last month Money Marketing reported that a key part of the justification for Catalyst being in the FSCS investment adviser class had been called into question, which reignited calls for reform of the funding of the compensation system. 


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. MIssold Investor 2nd January 2014 at 2:03 pm

    It’s important to distinguish the two issues that seem to be mixed up in this article. One is about identifying the causes of individual losses in advised sales, and the other is a more general issue about the FSCS funding model. Mr. Neale’s point was presumably intended to be about the first issue. Yes, FSCS must try harder. Rather than generalise about IFA responsibilities in major product failures (as we saw with Keydata), FSCS would surely do better to look at the facts of each advised case to determine if the advice was appropriate for the individual investor.

  2. Not just accepting the client saying; they were badly advised, or hadn’t been given all the relevant facts might be a good starting point. Also, not just accepting when a client states; they hadn’t been told about the risks involved might also be useful and finally using the law of ‘is this person telling the truth or could they possibly be liberal with the truth here for financial gain’ might also keep things in perspective.
    Like anyone involved in this business I respect the right for a client to receive proper advise but seriously when you look at the ever increasing work load at the likes of the FOS does this not say something about the culture we’re operating under these days?

  3. But what can the FSCS do if its masters at the FSA/FCA decree that a firm such as KeyData was an intermediary (which patently it wasn’t) or that it (the regulator) was in no way responsible for failures such as ArchCru and that intermediaries who, in all good faith, recommended ArchCru funds should, by some unspecified power of insight that totally eluded the regulator, have known about the the malpractices going on behind the scenes?

    We live in an environment in which the regulator can, with impunity, absolve itself of all culpability and dump it all on intermediaries. What if the FSCS concludes that intermediaries were not the guilty parties and that the failures leading to investor losses arose from lack of regulatory oversight rather than sloppy advice? Will the FCA accept responsibility or merely overrule the FSCS? Almost certainly the latter because, if the regulator is forced to accept responsibility, it is the regulator who will be held to account and forced to pay up using OPM. So whichever way it goes, intermediaries will still end up being forced to fooot the bill. For intermediaries, it’s a lose-lose situation.

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