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Why the next wave of claims is never far away

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

Advice firms are in the business of providing valued services to clients: financial planning, managing investments tax-efficiently, and for some firms, helping clients to achieve their life goals. This is what the advice profession is built on.

Sadly there are all too many stories that detract from this, of rogue firms and misled investors, of significant losses and untold consumer detriment.

The good firms (that is, the majority of advice businesses) are working hard to deliver great client service, and because they are in the business of advice, they are looking to do this profitably. But they are being thwarted in their efforts, as it is getting harder and harder to deliver advice profitably. The bad guys keep on coming, and the Financial Services Compensation Scheme levies – which at the last count totalled £119m for life and pensions advisers and £116 for investment advisers – keep on climbing.

It is nigh on impossible for advisers to budget for those kind of bills. Yet trends are emerging which signpost the potential troublespots for advisers.

What used to be a focus on unregulated collective investment schemes has morphed into claims related to Sipp failures. Claims are not just coming in at an advice level, but against admin firms and Sipp providers too.

Then there are film partnership schemes, which thanks to recent action from HM Revenue & Customs have now fallen squarely into the “aggressive tax avoidance” camp. It is predicted film partnerships will be responsible for pulling out the rug from underneath many an advice firm in the not-too-distant future.

And the difficulty is the market continues to evolve. The next misselling scandal is never too far away.

Firms can look to regulatory updates from the FCA and the FSCS to pinpoint the next wave of claims. Yet this is likely to be small comfort, as knowing what the troublespots are does not help if you know you did not give advice in these areas. The ripple effect of claims is such that the cost will turn up in FSCS levies regardless.

But nevertheless, forewarned is forearmed. We live in hope that one day stories about the value of advice will outweigh the headlines about million pound investor losses.

In the meantime, advisers are quietly resigned to setting aside yet more money to cover the sins of others. FSCS reform looks a long way off, but has never been more critical.

Natalie Holt is editor of Money Marketing – follow her on Twitter here

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Natatie, the frustration being the honest advisers have been shooting very loudly what needs to be done, are bleeding funds that could be used to improve the industry, but have been totally ignored for years.

    For years many of us have been stating time and time again the following:-

    1) New adviser sub class and permissions for unregulated investments. This is ignored as the FCSC, FOS and FCA knows the numbers applying would be low, therefore unable to cover the cost of compensations. It is easier to ignore and gain access to the funds requited from the less risky, unable to stop it happening, honest advisers.
    2) Create a regulated SIPP. A SIPP that can only hold regulated investments. Restrict advisers to these regulated investments unless they hold the new permissions. These SIPPs could include commercial property. What they could not hold is an unregulated fund, based outside the UK in a property land bank fund offering a guaranteed 8% returns (or more realistically, guaranteed to see your money stolen).
    3) Stop advisers who have been found guilt of clear poor practice from ever advising again. No more Phoenix firms or advisers. A few jail sentences and removal of all assets would not hurt. If there are no real consequences there is no real deterrent.
    4) Hold the regulators more accountable. With the vast amount of information they insist on collecting every six months, you would think they would be able to identify dangerous firms. I cannot believe I am saying this, but give them and the police greater powers to attack and close down these scams quickly.

    Pension freedoms have brought up a whole other bag of nails.

    1) We have been made the moral compass, the police of what is and is not right. This has been pushed on us before any judge has made any rulings.
    2) We have no protection, no idea what future claims will be based on. We explain the risks, we fully educate the client, but when push comes to shove point five applies every time.
    3) We are attacked for preventing clients gaining access to there funds by the media, MPs and regulators if we refuse to transact, yet you expect, no demand we accept the liability, when we do not know what future judgements will be and applied in retrospect.
    4) If we do transact we are told we are not doing it correctly, but no one and I do mean no one can say what is correct with any certainty.
    5) We will have to deal with client selective memory loss, even when advised correctly, when they fully understood the risk, as when it has not gone as they thought, claims companies manipulations, FOS not based on law but how they feel or think has happened and no come back on the clients (even if they have committed fraudulent statements). All this and knowing we will not have any real options or power to defend ourselves.

    We work on quick sand every day and have become resigned to pay out, like Al Bundy in married with children, handing out money until there is next to nothing left. We sit in our offices and as fast as we earn it, the powers that be spend it, give it away or fund their final salary pension arrangements. It is easier to say there, there than sorry you cannot have your money back.

    We are never thanked for all the good work we do. The only press, MP comments, media coverage is on the bad outcomes. They then ask why the consumer does not wish to engage with advisers.

    So, yes we the regulated advisers are fully aware of future claims. The problem is even when you think you have put together a fantastic case, advised correctly, if it goes wrong we also know if the powers that be don’t like the outcome, we have no means to defend ourselves fairly.

    I have said this many times before, put story lines into East Enders, Corry, Emmerdale and the other soaps and you will get a better response than all the articles, new stories and consolations put together.

  2. Martin, your comments are a prefect summary of the key issues facing IFAs right now.

    Please take note FCA / FSCS use RMAR to get ahead of those selling unregulated products via regulated wrappers and cross reference from data from platform / tax wrapper providers. If they have to report this activity then maybe they’ll be less inclined to take part in transactions (adviser or otherwise), then levy the hell out of any adviser daft enough to go “off piste”.

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