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FSCS payout hikes boost calls for overhaul

Advisers say huge rises in the level of compensation paid in relation to advisers who have gone out of business strengthens the case for an overhaul of the system.

The Financial Services Compensation Scheme’s annual report, published last week, revealed compensation payouts against investment advisers in default jumped by 156 per cent. Compensation rose from £71.3m in 2013/14 to £183.1m in 2014/15.

Payouts against life and pension advisers increased by 88 per cent from £18.7m to £35.2m over the same period.

The FSCS attributes the rise in compensation payouts against life and pension advisers to higher numbers of Sipp claims. It does not explain the rise in compensation against investment advisers.

The lifeboat scheme says payouts related to Sipps are “likely to rise steeply” next year.

Jacksons Wealth Management managing director Pete Matthew says: “The compensation system needs an overhaul. We have an almost faultless 40-year history but there is never any kind of dividend for firms like us.”

Yellowtail Financial Planning managing director Dennis Hall says: “The regulator has not cracked down hard enough on firms which phoenix and leave their liabilities.

“We need another system, such as one based on compulsory run-off cover, which protects good advisers and means we are no longer treated as a bottomless pit of funding.”

The annual report also reveals the FSCS has ordered an independent inquiry into the £20.4m cost of its online claims processing system.

The system, Connect, will allow consumers to make claims and check their progress online.

In January, the FSCS said the total cost of the system had spiraled from an initial estimate of £12.2m to £20.4m.

FSCS chief executive Mark Neale says: “I understand the frustration expressed by some industry members about these higher costs. That is why I have commissioned an independent review into the project.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 24th July 2015 at 3:14 pm

    How much is this independent review going to cost (us)? Has it been the subject of any sort of Cost:Benefits Analysis?

    What, exactly, does Mr Neale expect it to conclude other than that the simplest and fairest solution is a point of sale product levy? Does he expect any new ideas to be put forward?

    Other than their enduring obsession with the notion that the customer should never have to pay, what are the reasons for his and the FCA’s perennial resistance to a product levy?

    Given that many of these claims accepted on our behalf by the FSCS are in respect of firms driven into liquidation as a result of being unable to meet their liabilities in respect of recommendations, not covered by their PII, to invest in unregulated investment schemes which have subsequently failed, why were these unauthorised activities not picked up via the FSA/FCA’s RMA Returns? The fact that they were not proves just what a pointless and malicious waste of intermediaries’ time they are. Yet Wheatley, by his lack of action, appears to have been quite happy for this pointless and malicious waste of time to continue. Hopefully, his successor will do rather better.

  2. Completely concur with above, but fear the next regime will be little better. We are a pure protection firm, yet are being asked for a three fold increase in fees due to potential SIPP compensation claims; products we do not, never have and never will sell. The fact we are lumped into the same bucket is just sheer laziness on behalf of the FCA and FSCS. It also speaks volumes about their effectiveness at policing poorly run firms. Additionally, the fact that more than a threefold or fourfold increase in fees is also initially communicated via an invoice with no words of explanation – just beggars belief.

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