Former members of the British Steel Pension Scheme have lodged claims against almost 30 advice firms, raising concerns that inadequate PI cover will mean the Financial Services Compensation Scheme is forced to make a series of further payouts.
The warning came from Philippa Hann, managing director of litigation firm Clarke Willmott, who is representing more than 200 former members of the British Steel Pension Scheme with claims against 29 advice firms.
Ms Hann has concerns the IFAs in question are not adequately covered by professional indemnity insurance to withstand the claims.
This is because it emerged last year that financial advisers involved in the British Steel pension transfer debacle were struggling with PI cover after some insurers introduced a blanket exclusion on new policies for steelworker transfers.
Ms Hann said: “An ongoing concern is the possibility that many of these IFAs will not have adequate PI, or the excess payments will be so debilitating that they will fall into insolvency.
“The problem then becomes everyone’s because, yet again, the blameless IFAs will pay for it through their levies [to the FSCS].”
Damian McPhun, partner at Beale and Company Solicitors, said firms that advised BSPS members could have informed their old insurer at the time that claims were possible, which could have meant they were covered.
But many didn't do this, meaning under their new policy BSPS claims may no longer be covered.
He said: “In a sense timing is everything. If you are an adviser who's been advising BSPS members and you think claims might come in you can notify your insurers.
“And even if claims come in three years later, those PI insurers that were covering you at that point when you notified them, they are the ones which will have to pick that up.”
He added: “It is a very difficult situation for firms and a number either have exclusions or had their cover withdrawn and therefore they're struggling.
“And it is a problem that will grow, and grow, and grow, and ultimately the advisers that haven't been involved in this will have to fund multi-million pound liabilities that will fall on the FSCS, without a shadow of a doubt.”
He noted it would only take a few six-figure claims for a firm to go into liquidation.
Ms Hann agreed. She predicted "many more IFAs, who advised significant numbers of steelworkers to transfer out of their pension, will fail, leaving the rest of the industry to pick up the bill.”
FTAdviser reported last week (August 30) that Swansea-based firm S&M Hughes Limited, which trades as Crescent Financial, had started liquidation proceedings.
It was the second British Steel adviser after Active Wealth to enter liquidation and claims against the latter have already arrived at the FSCS.
Ms Hann criticised the way the system worked. She said: “It is entirely unsatisfactory that the regulations should allow for there to be exclusions for past business. It puts the IFAs themselves at risk whilst failing to protect consumers."