In an interesting turn of events, the Financial Services Compensation Scheme (FSCS) decided to run some adverts on Twitter a couple of weeks ago (20th January 2020) asking the public if “they thought they were entitled to compensation”. This is interesting because the FSCS is funded by a levy on the Financial Service industry, paid by adviser firms including ours. So, the image of an industry funded organisation publicly advertising for claims against its own industry certainly raised a few eyebrows, including mine.
The FSCS in its defence said that it was trying to make the public more aware of the fact that they could make compensation claims directly to them for free, rather than using third party Claims Management Companies (CMC’s), who can take up to 30% + VAT of a client’s compensation. In itself that’s fine and a good idea but the targeting and positioning and wording of the advertising could certainly do with more thought.
No one disagrees that the FSCS is required to protect consumers, but the costs of funding the scheme are increasing year on year and placing an ever-bigger burden onto adviser firms. Firms will have to contribute £213million next year which is a massive 13% increase. Adviser firms generally feel that in many cases the compensation does not result from bad advice. For example, the FSCS intends to compensate clients who lost money from sales of Minibonds, even though these sales were made by unregulated firms, not the regulated advice firms who are footing the bills. Which seems unfair. The Personal Investment Management and Financial Advice Association (PIMFA) went even further in the press this week suggesting that Financial Conduct Authority (FCA) supervision of financial services may not be fit for purpose because of its continual failure to prevent claims from company failures and unregulated advice.
They have a point.
All that ultimately happens is that firms have to pass these increased costs of regulation onto clients in the form of higher advice fees and charges, which in turn means that less people can afford to pay for advice, which is completely against the Government’s intention which is to reduce the advice gap.