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Failed advisers land FSCS with £212m bill

Failed advisers land FSCS with £212m bill

Defunct advice firms and failed discretionary fund managers cost the UK’s compensation scheme more than £200m in the 2019/20 financial year.

Statements for the year, published by the Financial Services Compensation Scheme today (July 9), showed it had paid out £282m in compensation to clients of 549 defaulted firms in the life distribution and investment intermediation class.

The FSCS told FTAdviser about 75 per cent of the compensation costs stemmed from failed advice firms and DFMs, accounting for £212m of the class's bill.

According to the lifeboat scheme, self-invested personal pensions and other pension advice claims remained the largest cost in the class, totalling £161m in successful claims.

During the year, the FSCS was forced to raise a supplementary levy following an increase in pension transfer and Sipp advice claims, as well as more complex and expensive advice claims overall.

Other factors contributing to the increased total included the large scale failures of wealth manager SVS Securities and DFM Reyker Securities, the report stated.

The class had 14,034 claims made against it in the 2019/20 year, slightly fewer than the 14,194 brought against it in 2018/19. 

The uphold rate was also lower — 69 per cent compared to last year’s 76 per cent — although the average claim paid rose from £18,500 to £19,500.

In total, the £282m paid for the life distribution and investment intermediation class was more than a third (36 per cent) higher than the £207m compensation bill for the previous year.

The class was also the most expensive area for the FSCS, costing more than double the next highest class in terms of compensation paid out.

General insurance provision cost the FSCS £126m while £88m was paid out for investment provision. 

Deposits, mortgage advisers and general insurance distribution were behind £5m, £6m and £21m in compensation payments respectively.

In total, the FSCS paid out £527m in compensation in the year to March 31, 2020 — 17 per cent more than its compensation bill the previous year.

Earlier this year the FSCS announced the overall industry levy bill would be £649m for the 2020/21 year, with advisers footing £229m of the cost.

The cost to advisers had increased from initial predictions by £16m, primarily due to advisers shouldering the bill to meet claims for misleading advice against the collapsed London Capital & Finance.

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