Most financial advisers would probably agree that one of the most disappointing outcomes of the Financial Advice Market Review (FAMR) was the way it handled the longstop and its blanket refusal to take matters any further.
The reasoning that led to the conclusion ruling out a longstop limitation period for the advice profession was both misconceived and incomplete. The argument focused on the nature of long-term products, on the belief that only a small number of cases are affected and on the expectation that the number of cases will fall over time.
The Retail Distribution Review (RDR), however, has changed the profession, ensuring that it is the advice that is the service offered by advisers and as such will always need to be reviewed. FAMR’s conclusion also missed the crucial point that while the quantum of affected cases may be small, the impact on adviser confidence of unlimited liability is significant.
The review even failed to consider the alternative options set out in its Call for Input or give any reasons for not pursuing them. The decision by FAMR is incomplete and therefore does not in any way mark the end of the road for the longstop campaign.
So where do we go from here? We still remain of the view that a 15-year longstop is the fairest solution, addressing serious issues for advisers, while benefiting consumers by enhancing their access to advice.
A 15-year longstop would provide consistency of treatment when it comes to consumer protection as this is the limitation period applied by the courts, by the FSCS and by the Pensions Ombudsman.
The FCA seems to recognise the value of being able to draw a line under an issue in providing certainty for businesses, as is shown by its proposed time limits for PPI claims. It would seem to be applying double standards if advisers, on the other hand, are expected to face liabilities indefinitely.
A balance needs to be reached between consumer protection and ensuring a viable and sustainable advice profession.
There are also cogent reasons why a longstop would be in consumers’ interests too and it is surprising that FAMR, whose main aim was to make advice more accessible to consumers, failed to understand that lack of a longstop was a direct hindrance to this.
Firms need greater certainty about the potential liabilities they face as the current situation is a barrier to investment and innovation. It increases costs and reduces the availability of advice as firms decide that the risks are not sustainable.
The uncertainties around liabilities encourage behaviour that is not in the consumer’s interest as firms structure their businesses in order to manage liabilities. The longstop is one aspect of the need to ensure that the advice profession is on a sustainable footing and that it will continue to grow and provide sufficient capacity to address the need for advice.
We will therefore continue with our campaign, focusing on pressure in Parliament and pressing for proper consideration of the alternatives the review team originally suggested in the Call for Input. The socialisation of costs, by the creation of a compensation fund, which would pay out in the event of a justified claim older than 15 years against an individual firm even if the firm is still solvent, was not considered.
Chris Hannant is director general of Apfa
