It is naive in the extreme of David Cliffe of the FSA to say that PI insurance costs have not risen because of regulatory failings. Many of these were clearly not the responsibility of the FSA in its current form but even now it is not dealing properly with the highest-risk areas of the IFA market.
An obvious example is pension fund withdrawal. I am dealing with several cases where IFAs, no doubt highly competent to a point, have put their own long-standing clients into drawdown plans, taking the maximum tax-free cash, the maximum income and investing wholly in a single balanced managed insurance company fund. The effect of that advice on potential pension income after three years will be obvious.
Of course, one cannot blame the adviser for the market falling but in each case it is clear that there was serious inadequacy in the adviser's understanding of investment principles (this is an area where Ron Sandler is right).
There is no doubt in my mind that the advice to use drawdown was competently given but the advice as to what to do after the transfer values were paid and the commission collected was woefully inadequate. However, the relevant disclosures to the client would have passed the applicable regulatory tests at the time and probably still would.
What is more, the ombudsman service does not seem to have any real expertise in this area and is having trouble measuring the client disadvantage resulting from the hopeless investment advice.
Now, if I am dealing with several of these cases as a provincial IFA with fewer than 1,000 clients, how many are there in the market? What is most galling is that IFAs themselves asked the FSA to limit this class of advice to people with the right experience and qualifications, both pension and investment-based, and the FSA refused to listen.
I should add that life offices are still running “training” courses explaining why advice can safely concentrate on the type A and B critical yield data, information which used in isolation is more dangerous than helpful.
The least acceptable irony in this is that if I succeed in getting any compensation for these people (and the financial stress they are suffering is considerable and totally unexpected, so they deserve it), it will filter through into the PI market and my premiums and those of the very many competent IFAs will go up.
These clients were certainly let down by their advisers but I think innocently through a lack of knowledge and training. The real blame lies with the FSA. This is an area where they were warned by practitioners themselves that tougher regulation would be necessary and they have signally failed in their duty to protect the public.
Ethos Financial Management, Alresford, Hampshire