There has been a great deal of discussion in the financial press about claims management companies, the potential financial exposure of self-invested personal pension providers, the increase of failed advice businesses and the impact on future Financial Services Compensation Scheme fees.
What does a financial services claims management company think will happen in 2019?
For companies like us at Assist.Claims, specialising in mis-sold pension claims, 2018 was the year that saw claims relating to Sipp investments come to dominate our workload.
The big profile actions, led by high-charging legal firms, focused on due diligence failures by Sipp providers. The claims mix coming across our desk, however, relied much more on the usual suspects – advice that did not match risk profiles coupled with advice to invest into single unregulated assets within Sipps.
This year will undoubtedly see the attempt by payment protection insurance claims companies to move into this space gather momentum, as the deadline for PPI claims approaches.Interestingly, the majority of our clients had not initially been approached by an adviser – much more usually an unregulated introducer had been in touch with them and offered a ‘pension review’ service.
If the client is then discovered to have a defined benefit pension with a transfer value in excess of £30,000, the introducer will have contacted a G60 or equivalent qualified financial adviser to advise on the transfer. Often an entirely different adviser will then effect the investment into the unregulated asset.
A small group of advice companies – many now in default with the FSCS – have been responsible for the majority of these unregulated asset investments.
Many of these claims end up with the FSCS – expect that to continue as more advisory businesses responsible for unregulated asset investments end up in default.
Expert knowledge needed
This year will undoubtedly see the attempt by payment protection insurance claims companies to move into this space gather momentum, as the deadline for PPI claims approaches.
What will be interesting is how much they try to replicate their PPI claims business model into financial services claims.
These companies have tended to buy data lists and then use direct marketing approaches to contact high volumes of potential clients – a scattergun approach, linked to a very high charging model.
Pension and Sipp claims require high levels of expertise coupled with legacy knowledge – one of our business partners traded as an independent financial adviser for decades and that experience will be hard for these new entrants to replicate.
So, although I have read many articles warning about PPI claims companies waiting in the wings, whether they can be successful is not clear.
Support for scam victims
When we first meet or talk to our clients they are often embarrassed and upset by what has happened.
They do not want to acknowledge it, but deep down they know that they have been scammed in some way. They need reassurance and support at the earliest stage.
They choose to approach us, and it is difficult to see them responding positively to unsolicited calls or emails from PPI companies.
Around half of our clients are referred to us by their new adviser and this is usually because that adviser has found something odd during an annual review, or at a first client meeting.
Either way, they recognise that moving from a DB scheme, or from a broadly invested money purchase arrangement into a single unregulated asset, sounds the alarm bells.
The other half of our clients find us online through Google.
We have not used direct marketing and it is hard to understand why someone who has been the victim of a scam would embrace such an approach again.
For those reasons PPI claims companies may not represent the threat that some have predicted. Stronger regulation is also likely to prove to be a challenge for some CMCs.
Regulation will drive professionalism
This year will be the year the Financial Conduct Authority will take over the regulation of CMCs from the Ministry of Justice’s claims management regulator.
This is hugely welcome and important. The FCA intends to use the senior managers regime within the CMC sector, and will also require much more transparency for clients about fees and activity, including a one-sheet document all clients mustbe sent.
We also hope to see a cap on ‘no win, no fee’ charges. Some businesses are currently charging more than a third of a claimant’s compensation, some even higher.
‘Treating customers fairly’ – a concept IFAs are fully aware of – does seem to be informing the early steps announced by the FCA.
Clients should, from April, be much more aware of charges and practices – and this in itself should help to drive up professionalism, and start downward pressure on fees.
‘Phoenix’ companies continue to be the cause of many FSCS claims. This damages the reputation of advice and is an area I suspect will require significant attention involving company law and FCA rules – and it needs to be addressed sooner rather than later to allow prevention rather than attempted cures.
The FSCS’s chief executive, Mark Neale, has already announced his intent in this area.
Sipp providers face claims
The final big theme for 2019 will be Sipp providers and due diligence. The FSCS announced in January 2018 the first three Sipp companies it had declared in default.
We have seen evidence of relationships between unregulated introducers and Sipp providers where no IFA has been involved.
This begs the question about what level of due diligence is required for an unadvised client.
The suitability of an asset to be held within a Sipp is a key issue here.
I expect more Sipp providers will find 2019 a challenging year in terms of direct claims, where these relationships with introducers and single unregulated assets come to the fore.
So that is our view of the specialist financial services claims management landscape in 2019:
- More advice businesses responsible for unregulated asset investments failing and ending up as FSCS claims;
- PPI claims companies finding the expertise and legacy knowledge needed to bring forward financial services claims a challenge to their current business model;
- A regulatory and legal tightening of powers to prevent ‘phoenix’ companies is urgently needed – but it will remain an issue in 2019;
- More Sipp providers facing direct claims in respect of due diligence and relationships with unregulated introducers;
- Regulation by the FCA will improve transparency and fairness, plus a cap on fees for clients of CMCs.
Ken Hanning is a partner at Assist.Claims
