This year’s nearly 10 firms declared unsuccessful by the Financial Services Compensation Scheme didn’t get off to a head start for the advisory industry.
I know this infuriates the majority of decent, good, hardworking financial planners.
After being hit with a series of customer complaints and leaving the FSCS with a “dirty wash” to sort out, they often have to watch a procession of disastrous corporate collapses every month.
This week’s issue of Financial Planning Today covers what appears to be an inexorable increase in advice firm bankruptcies. And yet another pension advisor firm failed, both failing and liquidating at more or less the same time.
they are not alone. In the first month of this year alone, nearly 10 advice firms were declared bankrupt by his FSCS. Claims will run into millions, if not tens of millions. Other advisors will pay.
It’s worth looking into the common causes of these failures, and there are several. Many of the companies actually failed a few years ago and either entered control, closed down, or simply lost regulatory approval.It often takes years to reach FSCS. . Many were involved in transferring pensions, and quite a few were involved in transferring his BSPS.
I won’t go into detail on the factors, but the transfer of pensions is not the only reason for failure. Many gave similarly poor investment or general pension advice.Some companies have hundreds of complaints against them.
There are no reliable figures on the number of complaints that are often initially submitted to financial ombudsman schemes, but it can be assumed that they were made by complaint management companies. This is a worrying trend for many advice firms, but it’s not the whole picture.
The fact is that many of these companies were poorly run and gave bad advice. They failed long before FOS and CMC got involved.
In my opinion, this is becoming a vicious circle and we may need to rethink who can provide advice. Founding an advice firm as a limited company and then walking away when it collapsed and giving the FSCS to clients If you can get your compensation costs sorted out, something is inherently wrong.
Many well-meaning financial planners and industry groups are calling for a move to a “polluter pays” model that distributes costs more fairly to the advisors who cause the most problems.
This is fine in theory, but I’m having a lot of trouble getting this to work in practice.
One solution might be a combination of tougher penalties for those who deliberately walk away from a failed firm, combined with tougher barriers to entry for new advisors who aren’t cut out for the job. Keeping out rogues and incompetents should be part of the journey to reduce claims.
The FSCS also has a role to play. One recent aggressive move is to step up efforts to seek redress from the people behind these companies. It has recovered millions. While this is welcome, this is really a drop in the ocean.The FCA is also considering reforming its entire reward system and not ahead of time.
What we shouldn’t do is destroy the good work the FSCS is doing. I have the record saying that for all its problems and costs, the FSCS does more to build trust in the financial services sector than anything else. It’s the light that often shines in dark sectors.
The FSCS is worth keeping for all its shortcomings, but it does more to prevent companies from failing in the first place and to keep the people behind these companies from entering financial services. You need to do. Early intervention by regulators can help prevent the accumulation of evidence-based problems that prevention is better than cure.
It’s amazing how many fairly new companies can handle a very complex area of advice with seemingly little experience. Advice companies should earn their stripes instead of being given the equivalent of a loaded gun before firing an arrow.
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Kevin O’Donnell is the editor of Financial Planning Today and has worked as a journalist and editor for over 30 years.