What’s going on in the Financial Services market?

Article by Phil

We love being in the Financial Services business. We take a real sense of achievement and satisfaction in being able to help clients to fulfil their ambitions, it’s really rewarding. It’s also nice to be able to make a decent living as well along the way. But, sometimes (no – most of the time actually) it can be a very frustrating business to work in. Being regulated by the Financial Conduct Authority (FCA) is a challenge and sometimes it makes us feel better to be able to let off a bit of steam, by making a few comments on what’s going on around us.
So, what’s new this month? Well, as usual the saga of Professional Indemnity Insurance (PII) continues to cast a shadow over many smaller firms like ours in the market.
We are required to have a certain level of PII cover in place at all times, in order to protect our clients in the event that they may have a claim for compensation in the future as a result of “bad advice” that might lead to them incurring losses. No problem there of course. However, the cost and lack of availability of PII is becoming an increasing issue because of two factors. Firstly, for those firms providing specialist advice on defined benefit pension transfers (like us), there is a fear amongst PII Insurers about the risk of covering such advice, because of claims for compensation relating to a small number of rogue advisers working in the British Steel Penson Scheme. These few “bad apples” have really upset the market for the rest of us. The “perceived” risk has also now been heightened by an increase in the Financial Ombudsman Service (FOS) claims limit from £150,000 to £350,000 in April. Again, on the face of it a good thing, giving clients more protection, but at a significant cost to adviser firms in the form of higher PII premiums (and ultimately to clients in the form of higher advice fees I’m afraid).
In some sense, its not unreasonable for premiums to be higher if there is more risk to insurers and increased cost, but the question is, is there really any extra risk? The FCA has created this fear by saying that 60% of the cases it looked at (in the area of defined benefit pension transfers), the advice to transfer was wrong. (The is of course in their opinion and there is a whole other argument about whether they even have the staff who are qualified to make such statements) But, regardless, the cases looked at were mainly from the “rogue” British Steel firms, so its no wonder.
Then you see the latest data released by FOS, who now confirm that 44% of all complaints received were in relation to transfer value changes. Nothing at all to do with the advice, but complaints about Providers taking too long to give valuations. This sort of thing makes advisers very angry. Months of bad press about “bad advice” and risk to clients, when it turns out that the facts are very different and half the complaints aren’t even about advice, and then you find out that FOS only had 144 complaints in total!! What is going on – all this fuss – higher premiums – PII insurers pulling out of the market – and then we find this all about only 70 odd complaints to date!
Meanwhile, in the real world, Store First (as just one small example), the storage unit providers, have been finally wound up, after selling 22,000 store pods between 2011 and 2016 worth £209m. What were the “authorities” doing for those 5 years when £200+m of real people’s money was being “lost”.
Nothing – too busy whipping up a storm about defined benefit risk on the back of 70 complaints!
This is only one small example of the weekly reports of “bad” and “rogue” investment schemes which have cost people millions, none of which were stopped by the “authorities”.
In other news, we now find out that the Government has raised £4.4 billion (that’s billion) from tax on pensions than it expected. This is the same Government that peddles the line that pensioners are a drain on Social Services and the NHS and should pay more! The overall tax take from pensioners is now £17.9 billion. Yes, that’s from people who’ve already paid tax for 50+ years.
Then you get the news that the FCA wants mortgage lenders to be more flexible because millennials (between 23 and 38) can’t get or even afford mortgages. This is the same FCA that worked with the Government after the “crash” 10 years ago to tighten up the mortgage market so that most people could no longer afford a mortgage. Now, 10 years later they’ve realised that they made a mistake. What do we pay these people for??
There’s more, but for now I think that’s enough, and we can back to the job of advising our new and existing clients and making a difference to their lives – that’s what we’re her for. More to come as the year goes by no doubt.

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