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FSCS: We must raise awareness of compensation for poor advice

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The Financial Services Compensation Scheme says greater awareness should be raised of compensation for poor advice.

A report by the lifeboat scheme says it should work with the industry to raise awareness of compensation for poor advice in order to improve confidence in the sector.

In a report on consumer trust in financial services published today, the FSCS identifies four “trust gaps” which it says need to be addressed.

These are: paying staff fairly, telling consumers when they would be better off switching products, rewarding loyal customers by offering the same deals to new and long-term customers, and raising awareness of compensation for advice.

The report says: “The largest trust gap of all relates to receiving compensation for losses incurred because of poor financial advice.

“Many consumers do not think that financial services firms are willing or able to compensate them, and are unaware that the FSCS already offers them protection in this area for failed firms.

“Raising awareness of the protection offered by the FSCS, what it covers, and how it can be accessed, would be an effective way to build trust and confidence, as demonstrated by trust in the safety of deposits.”

The FSCS says its research shows that 62 per cent of consumers are aware of the FSCS’s deposit protection scheme, but only 45 per cent are aware of the compensation the FSCS can pay for poor advice.

The trust gaps were identified through a survey of 2,500 consumers on their level of trust in financial services providers.

The research found that consumers typically believe financial services firms can deliver what they promise, but would only do something for consumers’ benefit if it was also in the firm’s interest.

The report says the four trust gaps are the areas where trust is lowest relative to the importance of that issue to consumers.

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Comments

There are 17 comments at the moment, we would love to hear your opinion too.

  1. Always great to start the week with a survey that demeans us all and vaidates the self serving quango that commissioned it.

  2. My initial reaction is that advice needs to be defined first. Otherwise this is all nonsense. My concern about robo advice (apart from the term) is what is the consumer entitled in terms of compensation and how does that tally with their expectations? For example, if an adviser fails to point out that a client should have an EPA or Will in place he puts himself at risk of a substantiated complaint. Are these new solutions designed to reduce the cost of delivering “advice” going to offer the same protection? I suspect not and the consumer is giving up something which they would otherwise get if they came to a proper human adviser!
    I think the FSCS should start to think forward and stop looking at the old fashioned world of “advice”.

  3. I’ve recently asked Mark Neale – twice – how much the FSCS has spent on advertising during his tenure. I’m still awaiting a reply. I’ll ask him again today. Every Client Agreement we issue tells clients about the existence of the FOS and FSCS. How much more of our money does Mark Neale intend spending to build his empire? And how much did this self-serving survey cost? And am I going to have to use the Freedom of Information Act to get straightforward answers to straightforward questions?

    • Neil may I ask you a question ?

      I have today read the article in MM RE-: HBOS management cant be fined ? the FCA says because HBOS fell apart so long ago, it will fall outside of a six year statute of limitations on fines.

      Now my question is; do we find ourselves in the position that the regulator and possibly the treasury, are themselves too reliant on the FSCS lifeboat scheme ?

      You see from my minds eye, what driver is there, for them to act more quickly and decisively to correct misgivings, I sometimes wonder if they are safe in the knowledge, irrespective of any downfall or poor advice, they know the bill will be paid from levies on the industry ! (as the HBOS story seems to indicate)

      Its long been a belief on mine that they (FCA, FOS & FSCS) really don’t care a jot, about poor advice, as in reality it keeps them in work and the ability to have the holyier than thou stance, and perceived to be the consumer champion ! all without personal cost or loss of image/reputation.

      The whole FSCS scheme for us is an albatross around the neck (our shackles, if you will) and for the regulators and hangers on there savior ?

  4. This headline statement contains two dangers.

    1. It makes the assumption and encourages the public to believe that most advice is poor. An odd thing to do when everyone is currently scratching their head trying to get more people to take advice in the first place.

    2. Who judges what is poor? Losing money (which is a common cause for complaints) doesn’t automatically mean the advice was poor. (for example).

  5. Life must be sweet at the FSCS if this is all they have to worry about. Before any awareness is raised the FSCS firstly needs to work out what products and advice should be covered and then how that cover will be paid for in a way that is fair and equitable to firms and their clients.

    Then and ONLY THEN, should the benefits of the scheme be promoted.

  6. “The research found that consumers typically believe financial services firms can deliver what they promise, but would only do something for consumers’ benefit if it was also in the firm’s interest.”

    Does this not show that consumers understand that financial services firms, like any other ethically operated business, operate on the principle of mutual benefit – or they go under.

    Why is this a surprise to the FSCS?

  7. Yes, get out there and be a proactive sinking fund…. Using more of the money which is gifted to you from the clients of good firms! It seems the FSCS have not heard a word that we have said then, or simply don’t give a toss!!

  8. Does Mr Neale have any data on which he’s basing this call for greater awareness of the FSCS? Such as how many people may have been entitled to compensation but didn’t receive any because they weren’t even aware of the existence of the FSCS or its purpose? If so, may we see or be referred to it? Or is it based on yet another unsubstantiated hunch?

    As Neil Liversidge points out, all Client Agreements have to include reference to the FSCS plus, of course, there are armies of CMC’s out there advertising their often dubious services in the media.

  9. I would suggest the comments made were targeting building societies and banks rather than IFAs per se; poorly worded article?

  10. To try and put a positive spin on this. There is great misunderstanding between regulated advice, which qualifies for compensation, versus other advice/guidance where the investor is left to carry all the risk of getting it wrong. This extra level of protection should and does give people greater peace of mind and making it clear what does and does not qualify for compensation is no bad thing. Compensation does only happen in a tiny minority of cases and it would be nice to see an awareness campaign about the benefits and availability of good quality advice!

  11. Letting consumers know they are protected by the FSCS for financial advice does make good business practice. The issue is how this is achieved and how the message is conveyed.

    Many consumers do not understand that if they seek advice from a regulated adviser they are protected. The current adverts being run by the FSCS around bank deposits does give the consumer confidence. It states that should the worst happen you the consumers are protected. Therefore if the advert recommended consumers to seek advice and gain the protection, why would you object? If poor advice has been given we will land up paying out anyway as the system and process for the complaint requires this within the FCA’s rules.

    If we are paying for the FSCS, FOS and FCA surely it would make sense to gain positive advertising from these bodies as the consumer will know they have protection and a means to complain.

    I am more concerned about how the message will be delivered to the consumer. If the advert is positive about advice, recommends consumers seek advice and states there is added protection from the FSCS, all well and good. However, if it is only about have you had poor advice and the adviser is no longer in business don’t panic we will pay out, clearly we should object.

    • Martins is a sensible logical comment with which I agree.

      What I think needs to be made very clear to consumers is that they pay for regulation and compensation. They also pay for Pension wise Mas etc. They need to know exactly where the charges for the advice and the products they are put into go. They also need to be informed that fines taken from financial services as an industry do not go to reducing the costs that the consumer pays but are taken and used for other things, possibly ex service personal. On that note it would be interesting to see the exact figures on that one??

      Lets have complete transparency, lets treat customers fairly, lets have accountability within the quango’s. The consumer pay’s for them, are they fit for purpose, do they offer value for money?

  12. In respect of the CMC’s, I came across one today – Pension Compensation UK.Com – which highlights exactly where the problem lies.

    Their FAQ’s states that if you received financial advice on pensions or investments, there is a “strong likelyhood that you will be entitled to compensation”. (?)

    It further confirms that all that is required to get a claim up and running is “the name of the company” who advised a client.

    So much for due diligence. It appears that there does not even have to be a complaint. Just wanting some money back is good enough!

  13. @ Tom Ward: You are SO right. A few months back a client – an educated person – asked whether he could claim compensation for a mis-sold mortgage protection (life cover) policy as he’d not died. No doubt that will be the CMCs next tack!

  14. “The research found that consumers typically believe financial services firms can deliver what they promise, but would only do something for consumers’ benefit if it was also in the firm’s interest.”

    That is what I believe about any commercial organisation I do business with. There is no point in them being in business if they do not profit from it – and they will not stay in business for long if they do not make a profit.

    It is encouraging to think that consumers typically recognise this truth – even if an organisation set up with the purpose of doling out other people’s money to redress the consequences of misdmeanours which now defunct businesses may, or may not, have committed does not.

  15. This article seems rather vague. Some of it I am not sure I understand either. I hope I’m not just being thick! Doesn’t raising awareness for this type of thing just encourage ambulance chasers of which people are already driven mad from PPI, bank accounts and accidents, oh and slowly investments in volatile markets! Great idea!! Ambulance chasers advising people to complain re. Investments should have to be regulated too! And carry out a thorough fact find, risk questionnaire and discussion around objectives and capacity for loss etc before any complaint is entertained!! As for paying staff fairly, what’s that got to do with clients and are they referring to bank staff?? They need to elaborate on losses also – is this referring to risky and weird offshore SIPP investments that most advisers do not offer?? All clients of decent financial advisers are made aware of how to complain when being shown terms of business. a as for the banks am I right in recalling that during the credit crisis where they couldn’t afford to pay into the FSCS levy and therefore didn’t have to yet their clients were still covered?? Yet to this day the biggest number of complaints to the ombudsman is about the banks!! Why don’t the banks have their own scheme which the rest of us don’t fund?? What would improve trust in the advice sector is surely not encouraging people to complain or highlighting that they can get compensation – that seems like an oxymoron which will just encourage ambulance chasers as I said before. Perhaps the FSCS should spend some of the money that we give it on promoting the value of good advice and what good knowledgeable advice can bring to the table!!

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