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.”