The increased compensation limit for the Financial Ombudsman Service has had mixed reviews.
The Financial Conduct Authority’s decision to increase the limit from £150,000 to £350,000 – for complaints that relate to advice given after April 1 – was taken because of the increasing number of “high value” complaints the Fos was handling.
Among this category of complaints sit those relating to advice on long-term investments that provide an income in retirement.
The FCA’s desire to make investors whole again – or as near to whole as possible – if they are misadvised on what to do with their pension savings is an understandable one.
Indeed, it is arguable that with today’s high defined benefit transfer values and the fact we are encouraging increasing numbers to save ever more money into a defined contribution pot, the principle of increasing the compensation limit is a sound one.
The problems arise because the side effects are to punish the good advisers who only seek to play by the rules and do right by their clients.
Rising professional indemnity insurance premiums are one of these side effects, and it now appears advisers cannot currently get cover for the full £350,000, meaning they will have to set money aside to cover the gap in case of a complaint.
Since this predicament was brought about by the FCA, it behoves the regulator to help advisers comply with its rules where it can and offer whatever leniency is possible in situations that merit it.
Ultimately, the PI market needs wider review – it is clearly unsustainable that so few insurers exist in this market – and while the FCA has said it is aware of this problem, a little understanding would help turn words into actions.