View more on these topics

FSCS boss: Scrap £50k limit on advice misselling payouts

Money-Notes-Currency-GBP-Pounds-700.jpg

The £50,000 compensation limit for negligent advice should be scrapped, according to Financial Services Compensation Scheme chief executive Mark Neale.

In a blog yesterday, Neale said that while instances of bad advice were “few and far between”, protection needed to be in line with retirement savings held in insurance products to give consumers more confidence in the system.

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

However, if an advice firm enters administration, the lifeboat fund can only pay out a maximum of £50,000 to anyone mis-sold investments.

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

“And 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. An adviser needs to see the full picture.”

Neale adds: “I can see a sound case for harmonising retirement savings limits. This has the support of MPs with 60% supporting harmonisation according to our research.”

The way the FSCS is funded is currently under review, with a consultation paper due this Autumn. According to sources familiar with the review, options being discussed include capping fees for smaller firms, making providers contribute more and taking unregulated investments out of FSCS coverage.

Neale said that how negligent advice was protected should also feature in the review.

Neale says: “Instances of bad advice are few and far between, when they do occur they can have a devastating impact on retirement savings which take a lifetime to build up.  We see that now with Sipp-related claims arising from advice to transfer retirement savings into a Sipp and then to invest in illiquid and risky assets.

“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.”

Recommended

Andrew Tyrie Tory conf 2013.jpg

Tyrie pushes FCA on FSCS funding review

Treasury committee chair Andrew Tyrie has reprimanded FCA chief executive Andrew Bailey for failing to give an update on the Financial Services Compensation Scheme funding review. In a letter dated 9 September, Tyrie asks what the scope of the review is and when it will be completed. He says: “Last October the committee took evidence […]

Currency-Money-Coins-GBP-Pounds-700.jpg

FSCS boss sees ‘significant issues’ with product levy

Financial Services Compensation Scheme chief executive Mark Neale has questioned the viability of a product levy to fund the scheme, citing “significant issues” with the concept. A review of the FSCS funding model was recommended in the Financial Advice Market Review and would apply to all areas of financial services covered by the scheme. Speaking after […]

Money-Currency-Falling-Coins-700x450.jpg

PFS urges Osborne to intervene over FSCS product levy

The Personal Finance Society has written to the Chancellor to press its case for a product levy to be considered as part of the Financial Services Compensation Scheme funding review. The professional body wrote to George Osborne this week setting out its concerns about the current “unsustainable” FSCS funding model. PFS chief executive Keith Richards […]

Guide

Guide: what you need to consider for your auto-enrolment project

In this guide, Johnson Fleming reveals what items you need to understand to gauge the impact of auto-enrolment on your business. The guide focuses on: the impact that your auto-enrolment scheme will have on you; assessing your workforce; understanding your staging date; reviewing your current provision; and modelling contribution levels and costs.

Trusts: Easier than you think?

Protection providers often extol the benefits of placing plans in trust. The advantages for clients are widely recognised and numerous – inheritance tax mitigation, avoiding probate delay, controlling claim proceeds, and so the long, familiar list continues. Yet, dismissed as unnecessary form-filling, or simply viewed as irrelevant in the context of a mortgage sale, less […]

Newsletter

News and expert analysis straight to your inbox

Sign up