Your IndustryMay 10 2019

Changing advice rules and the cost of PI: the week in news

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Changing advice rules and the cost of PI: the week in news

The industry had less to celebrate however as the regulator proposed changes to advice rules and advisers faced hefty PI bills. It’s time for the week in news.

1 Rules are made to be changed

Earlier this week the Financial Conduct Authority proposed significant changes to its mortgage advice rules.

The City-watchdog revealed it would ask mortgage advisers to keep a record of why they recommended certain policies after it found people were being sold products that were unnecessarily expensive.

It stated it had found 30 per cent of consumers could have found an identical or better mortgage that was cheaper than the one they bought and that receiving advice made no difference to the likelihood that they overpaid.

The FCA also proposed to make execution-only options easier for consumers by changing what counted as "advice". Advice will no longer include comparison and filter sites and consumers who ring up about a technical or admin problem will not be channeled into an advice route just because they interacted with the firm.

The changes come after the watchdog stated in its latest Mortgage Market review that it was concerned consumers were being "unnecessarily channeled" into advice and said its rules on advice could have been a barrier to the development of tools that help consumers choose and buy a mortgage.

2 Advisers in troubled water

The FCA is seeking to fine five individuals and one advice firm more than £1m for their part in pension transfer advice.

The regulator imposed a penalty of £311,639 on advice firm Bank House Investment Management Limited and issued public censures on Financial Page Ltd and Henderson Carter Associates Limited, which are both in liquidation.

Andrew Page, director of Financial Page Ltd, and Thomas Ward, an unapproved de facto director of Financial Page Ltd, have been issued with a prohibition and fines. 

Aiden Henderson, director of Henderson Carter Associates Limited, has also been issued with a prohibition and fine alongside Robert Ward and Tristan Freer, for their roles as directors of Bank House Investment Management Limited.

They all appealed the decision at the upper tribunal.

It emerged the firms' advice had led to £48.9m in compensation paid out by the Financial Services Compensation Scheme to date.

The regulator claimed the three advice firms had "little meaningful oversight" and involvement in the service provided to their customers as they outsourced functions to unauthorised third parties.

3 To pay or not to pay

Law firm Shearman & Sterling urged the FSCS to consider paying out compensation to collapsed mini-bond companies and some bondholders.

The firm asked the scheme to consider whether London Capital & Finance carried out activities in two regulated areas, namely "dealing in investments as principal" and "operating a collective investment scheme", which could trigger payouts.

The FSCS cannot currently accept claims for compensation from 14,000 bondholders who invested in London Capital & Finance, as the act of issuing mini-bonds in the UK is not a regulated activity.

But it stated it would investigate whether any advice was given, which could then lead to payouts. It has since confirmed it is exploring possible grounds for compensation but warned the investigation could take "some time". 

4 Pay higher premiums or pay out

This week, FTAdviser revealed that advisers could be asked to fork out thousands of pounds for complaints under new "shared liability" policies from professional indemnity insurers.

Shared liability is the latest in a string of responses from insurers to the new Financial Ombudsman Service compensation limit, which was raised from £150,000 to £350,000 on April 1.

Shared liability means that for any claims brought the adviser would be liable to pay a percentage of the compensation given to the client. For some this could mean a £180,000 bill on a £350,000 claim, made up of £170,000 plus a £10,000 excess.

Advisers have said sharing liability, and the risk of advising on DB transfers since the Fos hike, could lead to a rise in capital adequacy requirements and could force some to close.

5 Stricter rules, higher triage costs

Some financial advice firms have started charging their clients for triage services that were previously offered for free since the Financial Conduct Authority introduced stricter rules on the practice last year.

Advisers are using third party providers, such as Money Alive’s Final Salary Portal videos, and are charging for the service, FTAdviser found.

Under the FCA's stricter rules for pension transfers, any guidance based on a consideration of a customer’s circumstances "which steers them one way or the other" is likely to be considered advice on the merits of a transfer, and therefore pension transfer advice.

But charging for the service throws up questions as to the type of service that is being offered, whether it sails too close to what may be perceived as advice.

imogen.tew@ft.com