The Government is facing calls to radically shift its approach to unregulated investments so people taking “extreme risks” are not entitled to compensation.
Consumers are currently compensated for bad investments in non-regulated products where they receive investment advice from a regulated adviser.
In its response to the Financial Advice Market Review, adviser trade body Apfa says unregulated activity “should not be part of any regulatory body’s remit”.
It says: “There should be no compensation for people taking extreme risks. Such people should not be afforded the same protection if they are actively choosing higher risk investments.”
FAMR is looking into potential reforms to increase the availability and affordability of financial advice, including a potential long-stop on liability, and Apfa argues the cost of compensation for unregulated products is currently being borne by clients.
It says: “There is a question to be considered about the balance of what is compensable. For example, should those taking very high risks have the comfort of being bailed out by those making very low risk investments?
“The consumer benefits are skewed as the loss and subsequent compensation for the few is highly visible; whereas the cost borne by the many is spread over a larger number. But as compensation pushes the price of advice up, fewer consumers are able to access it.”
The trade body also says that large numbers of Financial Ombudsman Service claims are being driven by claims management companies.
A substantial proportion of these, it says, are “frivolous and unfounded” but nonetheless represent a drain on resources for advisers who have to defend them.
Apfa says: “We believe that there should be a fee charged to CMCs for bringing cases before FOS as this would encourage such companies to only bring claims with a reasonable prospect of success.”
The Government is taking evidence submissions for the FAMR until 22 December. It will also consult with an expert panel led by former Scottish Widows boss Nick Prettejohn, and featuring Aviva chief executive Andy Briggs and Intrinsic chief executive Richard Freeman.