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FSCS payouts against investment advisers soar to £183m

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The level of compensation paid in relation to investment advisers who have gone out of business has jumped a massive 156 per cent to £183.1m in 2014/15.

In its annual report, published today, the FSCS revealed compensation payouts against investment advisers in default has risen from £71.3m in 2013/14.

Payouts against life and pension advisers have also jumped 88 per cent over the last year from £18.7m to £35.2m.

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 report also reveals the amount of compensation for Sipp claims against advisers has risen by 50 per cent.

The average payment rose from £11,104 to £16,375 this year, triggering a £20m interim levy on life and pensions intermediaries announced in March.

The FSCS says complaints and payouts related to Sipps are “likely to rise steeply” next year, despite the overall number of new claims across all products falling from 39,258 to 31,762 this year.

Chief executive Mark Neale says the rise in Sipps claims was caused by “poor advice to transfer pension savings from sound occupational schemes into Sipps and then to invest in illiquid and risky assets within the Sipp”.

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Dominic Thomas 16th July 2015 at 1:40 pm

    Sam, could you provide a typical example of what went wrong, why and how the compensation was paid out.

  2. Blows the Capital Ad argument right out the window then !!

  3. Chris Gartside 16th July 2015 at 2:09 pm

    As the IFA community fund the majority of the pay out, we should demand a full breakdown of the individual payments and the circumstances surrounding the claims – similar but with more detail than the FOS annual summary. If these details aren’t published how can the industry learn from past mistakes?

  4. Julian Stevens 16th July 2015 at 2:46 pm

    And why did the PII of these now obliterated advisory firms not pay out? Probably because the policies didn’t cover the types of investments they were recommending which, unless I’m wrong, is virtually the same as trading with no PII at all. What’s the FCA doing about it? What’s APFA doing about it?

    • Julian – this is because PI pays out for claims made when the policy was in force, not for advice given when the policy was in force.

      This allows insurers to conveniently cover something now then discontinue that cover when they think that there is actually a possibility that a claim might come in and, even better, walk away if the firm concerned is wound up.

      If PI worked like, say, employers’ liability, where the cover must continue, even if the employer ceases to exist, then this would not happen.

  5. “Chief executive Mark Neale says the rise in SIPPs claims was caused by “poor advice to transfer pension savings from sound occupational schemes into SIPPs and then to invest in illiquid and risky assets within the SIPPs”.

    The bit missing here is “and take high levels of commission”

    As I and the contributors to this thread were not responsible for this rubbish you can understand why we object to a failed regulatory system that caused this and then holds us responsible for paying the compensation.

    For the sake of completeness can you ask Mark Neale to stop claiming that the FSCS pays this compensation? They do not pay it, they administer it, we pay it.

    When will we have a regulatory system that makes the polluter pay?

  6. Julian Stevens 16th July 2015 at 6:21 pm

    I agree with you Nick. But if the perpetrators of these disasters are Ltd Companies and forced into default, they can’t be forced to pay, unless the FCA starts requiring RI’s to sign undertakings of personal liability. But that would go against the whole concept of Ltd Co status, so it’s unlikely to happen. Then again, you never know…….

  7. Unfortunately the polluter never pays and the reality is that we will still have to pick up a huge bill. Someone has to pay, the money has to be found. Clients will end up paying. A levy on products and advice is one way forward but if there is a shortfall then yet again the FSCS will come back to us. If proper data was recorded then the levy could be more precisely targeted rather than at the more general classification of intermediaries. And I do feel that there is a case to rebate some of the fines to those companies that have a proven track record, that have gone the extra mile to improve their proposition, achieved independent standards. When you have never sold KeyData products, SIPPs, structured products, unregulated investments, esoteric and fanciful schemes etc. the levy is not just unfair and unjust- it is legalised robbery. What reason have we to be fined for the actions of others?

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