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Advisers say scrapping limit for poor advice does not address FSCS failures


Advisers say removing the £50,000 Financial Services Compensation Scheme limit for poor advice would not address the inherent failures in the scheme’s funding and the way it operates.

Last week, FSCS chief executive Mark Neale wrote a blog arguing the £50,000 limit for negligent advice should be scrapped.

There is currently no limit to compensation available for retirement savings held in insurance products, allowing consumers to reclaim 100 per cent of their losses if an insurer or provider goes bust.

But if an advice firm is declared in default, the lifeboat fund can only pay out a maximum of £50,000 to anyone missold investments.

Neale wrote: “There is little logic to protecting retirement savings in insurance products without limit, but to restrict protection for misselling to £50,000.  This is confusing for consumers and corrodes confidence.

“It leaves consumers with retirement pots in excess of £50,000 in a quandary because it makes no sense to break the pot up for the purposes of seeking advice.

“Instances of bad advice are few and far between, but when they do occur they can have a devastating impact on retirement savings which take a lifetime to build up.

“That’s why I believe it is right to take a fresh look at the level of FSCS protection for negligent advice – currently £50,000 – as part of the current FCA review of our funding.”

But advisers say the problems with FSCS funding go much deeper than the maximum level of redress.

Informed Choice managing director Martin Bamford says: “Liability is a tricky issue, and we all want to see the best done by consumers. In the headline-grabbing cases about rogue advisers, the amounts involved are often well in excess of £50,000.

“But there is a lack of joined-up thinking about consumer protection overall. Advisers pay for three different levels of consumer protection, through the FSCS, professional indemnity insurance and capital adequacy. But when a firm fails due to negligence, bar PI those channels become ineffective.

“I would rather see one of those aspects working really well, and the one that stands the most chance of success is probably PI.”

Yellowtail Financial Planning managing director Dennis Hall says: “I have mixed feelings about this. The £50,000 limit has never been uprated with inflation, and that’s before we get to the question of whether the limit itself is reasonable.

“In theory, the limit should be reviewed but it’s a question of who’s funding this.

“Removing the limit would open the door to some hefty claims, and advisers would feel the pinch from the latest raid on their bank accounts.

“There is unfairness all around in FSCS funding – unfairness for those paying for it, and unfairness for those the FSCS is supposed to be protecting.”



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. All in favour of increasing the limit where it can be shown that this was due to bad advice but only if FSCS funding is changed to more fairly reflect costs to businesses that never have any claims against them and as long as unregulated advice is not included as eligible for a claim, as clients should only deal with reputable regulated advisers who they can easily check out first on the register. Much of the current problem stems from crooks setting up as advisers to recommend scams to fleece people of their cash which are not shut down immediately once discovered and sales of unregulated products where a client should expect to loose their money with no comeback if it goes wrong – as this is UNREGULATED so should be UNPROTECTED as a consequence and suitable for only high risk investors who can afford to loose it !

  2. Natural evolution should also be considered here as stupid people who don’t do sufficient due diligence on their advisers, in some way deserve everything they get for not taking precautions and being so stupid – if such people are subsequently then excluded from FSCS protection, eventually people will finally realise the value of using a quality regulated adviser and not go for “get rich quick” schemes that usually sound too good to be true, which they usually are. People should then start to take more care before parting with their hard earned money. Those that don’t will probably duly loose what they have, which just then leaves a more educated and careful society making it much more difficult for crooks to succeed – simples !!

  3. It is just too easy for a firm to go into default and walk away when they face significant claims – that is the root of the problem.

    Personal liability and accountability should be the focus going forwards, along with PI cover that actually pays out whether or not the ‘guilty’ adviser managed to hide potential claims while preparing his exit!

  4. Nicholas Pleasure 5th October 2016 at 2:50 pm

    @Martin Martin – be careful what you wish for! I have experienced the FCA change its mind about products and an advice process with which they were previously happy. Would you really want to be liable for products on which you have advised in good faith but were subsequently decided to be toxic with the benefit of 20/20 regulatory hindsight?

    The only real problem with the FSCS is that it pays out on the wrong stuff. A scheme that was designed to secure the vanilla investments of vanilla IFA’s is now being used to underwrite the speculative investments of crooks. The FSCS is essentially making bad investments look acceptable.

    It’s time that the FSCS changed the rules so that advice on unregulated investments is UNPROTECTED. This could be achieved simply by the FSCS keeping an online list of regulated investments that it covers. If your investment isn’t there, you are on your own.

    Thereafter the vanilla clients of vanilla advisers could have all the protection they need and their advisers (and hence the clients) could cease to pay for the stupidity of those that wish to gamble.

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