Advisers are taking steps to try to mitigate future compensation claims, but there is currently “no formula to calculate advice risk” and no effective way for firms to protect themselves, according to the co-heads of a campaign to bring a time-bar on financial complaints.
In the latest FTAdviser video, Chris Hannant, director-general of the Association of Professional Financial Advisers, said: “There is evidence in the market of people taking steps to counteract the large liabilities they potentially face and we want to see a fair balance.
“A fair balance would be the introduction of a time limit that reflects if you were to bring a case to the courts anyway.
“It is at present the only mitigation you can do by working through a limited liability corporate shell. That protects you as an individual in a way that working as a sole trader or in a partnership does not.”
Speaking to Financial Adviser’s Simoney Kyriakou, Mr Hannant said advisers were making sure they had “good records, so if a complaint comes through for something that potentially happened 20 or 30 years ago, you can trace back what you said at that time.”
Richard Howells, intermediary sales director of Zurich UK, which has backed Apfa’s campaign for the introduction of a long stop, said the regulator needs to recognise “people get better outcomes with advice” and the lack of a long-stop prevents the growth of adviser numbers.
He said: “There has to be a balance. It is about creating a sensible balance between the consumer’s need to complain where it is warranted and giving financial advisers some form of back stop to say, after a period of time it is not legitimate for a complaint to come forward.
“How do you mitigate against something when you don’t know what it is going to look like?
“There is no formula to calculate advice risk. Nobody knows what the next potential advice question will be and what product line it will be and what area of the market it will be in.
“It is very difficult if you are running an intermediary business or a network to try and think ahead and say what are we trying to mitigate against.”
