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PFS calls for action over advisers with CMC permissions

PFS calls for action over advisers with CMC permissions

The Financial Conduct Authority should step in to make sure the 54 firms which hold permissions to advise on investments and to act as claims management companies do not have a conflict of interest, the Personal Finance Society has said.

According to data obtained by FTAdviser under the Freedom of Information Act, 54 authorised firms have permissions to advise on investments and also hold some form of claims management permissions.

The FOI follows the regulator’s recent plans to crack down on phoenixing cases and prevent CMCs from managing Financial Services Compensation scheme claims where they have a connection to the claim.

The FCA said CMC phoenixing - where an individual related to a failed advice firm resurfaces at the CMC handling claims against their former business - accounted for at least 220 FSCS claims each year.

There is no suggestion that the 54 advice businesses are in danger of failing, but industry figures have called for closer scrutiny. Matt Connell, director of policy and public affairs of the PFS, said: “Individuals should not be able to financially benefit from their own past conduct, which caused consumers to be out of pocket.

“We urge the regulator to take further steps to make sure firms with dual permissions to recommend investments and act as claims management companies are adequately addressing any potential conflicts of interest.

"Any poor practices among claims management companies must be addressed as ultimately this impacts on public trust in the personal finance profession."

Simon Harrington, senior policy adviser at Pimfa, said the body supported the FCA’s moves to ban CMC phoenixing in instances where Financial Services Compensation Scheme claims could arise. 

But he added "It is too soon to take a definitive view on whether or not the planned reforms [will work]. This issue will be better assessed with the benefit of time and distance," he said. 

The FOI also revealed some 63 applications for CMC permissions are currently being assessed, with 27 of those applicants having temporary permission to provide CMC services.

In September the FSCS alerted the regulator to 412 phoenixing cases, wherein advisers who worked at firms that defaulted had joined a CMC to bring claims against their previous firm. 

The FSCS told FTAdviser it had identified 145 such advisers so far in 2021, in addition to 267 that it had flagged previously to the City watchdog.

It said there were further cases still being assessed.

'Titanic proportion'

Tim Morris, independent financial adviser at Russell & Co Financial Advisers, said: "Based on the [latest] FSCS figures, it doesn’t appear the current measures are sufficient. Yet I do appreciate the large scale of the issue. As often the case only the tip of the iceberg will show above sea level. Start delving and it could be of titanic proportion."

The FOI data also showed around 652 firms currently have full authorisation for claims management activity, including at least one CMC permission.

Morris said: "In isolation, 54 is a small proportion. Yet in my view the number should be 0. It’s a conflict of interest to claim compensation for advice and then invest the resulting proceeds - of which I’ve heard examples.