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.”