A new survey has found that finance firms do not trust the FSCS to deliver fairness.
Many would argue that the financial advice industry has been undergoing a much-needed shift in the last five or so years. The spotlight has been firmly fixated on the mis-selling of financial products through pensions and investments and this has meant many firms have quite rightly taken a beating in the public eye, and on the bottom line.
The Financial Service Compensation Service (FSCS) has been working overtime to compensate thousands of disgruntled investors who have been sold poor investments by their financial advisors. Those advisors are now venting their distrust of the FSCS.
A new survey carried out by trade body, PIMFA, has shown that almost two-thirds (64%) of financial advice and wealth management executives do not trust the FSCS to deliver fair outcomes for consumers or their firms.
82% of firms said that FSCS costs now accounted for at least 20% of their outgoings, due to the levy the FSCS imposes on all financial companies in the UK. 45% of member firm chief executives or business owners have seen increases in their FSCS levy bill of more than 100% in the last five years.
The levels of the trust actually remain unchanged, or have not improved, in those five years for 60 per cent of finance firms in the UK.
Following the survey results, PIMFA is now urging the FCA and the Treasury to work more closely with financial firms to rebuild the trust in the FSCS.
Liz Field, chief executive of PIMFA, said:
The FSCS plays an absolutely vital role in protecting consumer savings and we recognise that the trust it engenders for consumers has a benefit to our firms.
But the results presented in this survey point to a wider disconnect between a profession, which seeks to deliver the best possible outcome for consumers, and a regulatory system that most firms see as providing inadequate support at best, or failing both consumers and firms alike at worst.
The FSCS warned financial advisors in December 2019 that the levy it imposes would have to be increased due to the increase in pension claims. £162m of the total £237m advisor levy was related to pension advice as the lifeboat scheme was dealing with more complex and more expensive claims in that area.
They stated last year that they expected to make 1,200 (58%) more decisions in relation to general investment activities against a variety of firms.
The FSCS also said at the time that it recognised the frustrations of straight-edge finance firms who are having to pay the extra levy due to some rotten apples within the industry.
How does the FSCS compensate investors?
The FSCS is a statutory deposit insurance and investor compensation scheme. It compensates clients if a financial firm is unable to. It has often been described as a “lifeboat” fund.
In order to cover the cost of rising compensation claims, the complete FSCS levy has jumped to a total of £635m. This levy is funded by financial firms authorised by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The scheme is independent of the government and the financial industry, and was set up under the Financial Services and Markets Act 2000, becoming operational on 1 December 2001. They do not charge individual consumers for using their service.
Smooth Commercial Law work alongside the FSCS to get clients the compensation they deserve. The FSCS have protected more than 4.5m people and paid out £26bn in compensation.
The scheme can pay out a maximum of £85,000 on individual investment claims.
How can Smooth Commercial Law help?
At Smooth Commercial Law, our team of experts have extensive experience in dealing with a whole manner of claims that arise from negligent and/or unsuitable financial advice. We are seeing more and more mis-sold SIPP claims, and have managed to secure compensation for many of our clients.
Should you have a claim, we can deal with your case and look to recover compensation for not just your loss of investment but also any adverse tax liabilities that you may now be facing as well.