Financial Ombudsman Service  

Warning Fos limit could 'cripple' advisers

Warning Fos limit could 'cripple' advisers

The decision to increase the Financial Ombudsman Service's compensation limit could be "crippling" for the financial advice profession.

The Financial Conduct Authority has proposed increasing the limit from £150,000 to £350,000 as part of plans to allow small businesses to use the Fos.

Under the plans, published last October, claimants will be able to claim up to £350,000 through the Fos from 1 April 2019 if the incident complained about took place on or after this date.

If it took place before 1 April 2019 the compensation limit will be £160,000 and both limits will be increased by consumer prices inflation every year to make sure consumers and small businesses receive adequate compensation.

Russell Facer, managing director of Threesixty, said the proposal could lead to increased professional indemnity insurance premiums for advisers.

Speaking at the Dynamic Planner conference today (February 6), he said: "My concern fundamentally on that is that talking to underwriters it could be crippling for the PI market as a whole.

"Going to £350,000 is challenging. But people who have done their DB transfer arguably should have some form of protection."

Mr Facer added this could be particularly problematic for advisers which operate in the defined benefit transfer space.

There have already been signs advisers are struggling to get adequate PI insurance if they advise on DB transfers.

Pension transfer specialist O&M Pension Advice announced it was to shut its doors to new business last May after it struggled to find adequate cover to continue trading.

The firm had joined Phil Billingham’s Perceptive Planning as an appointed representative and was on its way to becoming directly authorised when the holding company of its PI insurer went into administration.

Mr Billingham said the problem was insurers, which were already nervous about pension transfer risk, would view the firm’s exposure to the transfers as too high and its size as too small.

He felt insurers had been trying to help but were unable to shrug off recent experiences from the British Steel fiasco, where multiple firms were implicated in supposedly giving bad transfer advice to workers and are now facing claims.

Mr Facer said: "There are firms that do a lot of DB transfers and do them very well but because insurers are worried about the level of risk they are not getting the insurance."

But Mr Facer acknowledged that higher PI premiums could, in the long term, lead to fewer cases going to the Financial Services Compensation Scheme, and therefore lower levies for advisers.