Advisers have criticised the Financial Services Compensation Scheme for encouraging people to submit claims, accusing it of following the style used by claims management firms.
The criticism came after the lifeboat scheme published a Twitter post yesterday (January 20) asking individuals whether they were eligible to claim compensation and suggesting they should do so via the FSCS.
Advisers then took to Twitter to complain the FSCS should not be promoting its services in this way as doing so gave the perception it operates the same way as claims management companies.
They also called for an overhaul of FSCS funding, saying the system was "broken".
Victor Sacks, independent financial adviser at VS Associates, said: “I'm sure the FSCS think they are doing the right thing by promoting their services, but I feel this is the wrong way to do it. To advertise in such a way shows them to be behaving like ambulance chasers.”
Martin Bamford, director of client education at Informed Choice, said: “It’s outrageous for the FSCS to be spending our money encouraging claims. Rather than splashing the cash with other people’s money, the FSCS should be doing everything in their remit to keep claims down.
“The levies raised against regulated firms now exceed the total cost of regulation, which is indicative of a failed regulatory system.
“It’s become far too easy for the regulator to turn a blind eye [to] mis-selling, safe in the knowledge that good businesses and their customers will pick up the tab. It’s time for the government to step in and reform the entire system.”
Source: Twitter
Replying on Twitter to advisers' messages, the FSCS said: "Our ads are part of a campaign to inform potential FSCS customers that they can choose to claim direct with us for free rather than using 3rd parties who often charge a fee."
Last week (January 16) it was revealed that advisers will be expected to pay £213m towards the FSCS levy for the coming year, almost 13 per cent more than in the previous year.
The lifeboat scheme predicted claims volumes for 2020-21 would total £635m, £87m more than in 2019-20 and the FSCS put the increase down primarily to a rise in the number of self-invested personal pension claims.
Alan Smith, chief executive officer at financial planning firm Capital Asset Management, said although he supports a form of safety net for those in extreme circumstances as a result of being poorly advised, he believed the situation has gotten out of hand with the FSCS levy costing more than advisers’ regulatory costs.
Mr Smith said: “To see the FSCS advertising across Twitter and other social media encouraging claims and announcing that it’s free suggests to me that they have misunderstood their purpose and mandate.
“Surely it will be better to prevent the problems arising in the first place rather than attempt to catch them up with compensation claims after the event. Prevention is better than cure.”
Rebecca Aldridge, managing director at Balance Wealth Planning, said: “The FCSC should not be trying to compete with CMCs but rather should try to shut them down.
“While it may be necessary for CMCs to operate as they offer individuals a service there should be rules in place to prevent them from touting for business or advertising their services.”
Ms Aldridge said: “The FSCS levy is increasing again, with advisers footing the bill. This is unfair as advisers contribute little to claims as they are not the cause of the majority of the problems."
A spokesperson for the FSCS told FTAdviser: "We recognise the industry’s concerns about the rising trends in compensation costs, and we are deeply conscious that without levy payers' funding and support FSCS cannot expect to carry out its remit.
"However, FSCS has a duty to raise awareness of its existence and let consumers know that they can turn to FSCS if they lose money through their dealings with a failed financial services firm. And also, that consumers can do so direct without the need to engage a claims management company.
"One of the ways we do this is through our social media channels. We also work with firms and insolvency practitioners. It is key for us to continue to work with the industry to help to reduce compensation costs whilst avoiding consumer detriment and maintaining confidence in the financial services sector."
amy.austin@ft.com
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