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.”
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.”