Advisers who help their clients submit claims have been warned they must make sure they have the correct permissions beforehand to avoid facing serious implications.
Although advisers have been urged to help bring claims to the regulatory bodies for free, to push back against claims management companies, there is a risk the new regime to regulate claims managers could catch advisers out.
Neil Liversidge, managing director of West Riding Personal Financial Solutions, said advice companies may be well-placed to help their clients in bringing claims and should even do it on a pro-bono basis in some cases, after he helped a client win £21,000 in compensation from the Financial Services Compensation Scheme.
But others have warned advisers they must have permission from the Financial Conduct Authority to carry out some aspects of claims management work, even if it is done on a pro-bono basis.
In April, the FCA became the regulator of CMCs and its rules state that if a firm carries out regulated activity they will need to get permission, unless they are exempt.
These activities include seeking out, referring, advising and representing clients with their claims, including claims made to the FSCS.
Keith Richards, chief executive officer of the Personal Finance Society, said without obtaining the relevant claims management permissions, advisers cannot safely do much towards helping their clients get compensation.
He said: “The FCA handbook suggests advisers can assist with claims handling but this should be carried out without a commercial element.
“If an adviser acts on a pro-bono basis to assist the client with making a claim, compensation could be used to invest and therefore the adviser could charge for their advice.
“If this were the case it breaks the defence of foregoing any commercial ties and therefore the adviser could be liable and there could be serious implications.
“For these reasons it is risky for advisers to provide claims management services without permission on the basis that they are doing so for free and therefore not by way of business.”
Bringing claims to the FSCS is free and so is bringing complaints against active comapnies to the Financial Ombudsman Service.
But consumers are often not aware of their options and clinets can be targeted by CMCs to bring claims for fees, often amounting to a third of the compensation award.
Alan Chan, director and chartered financial planner at IFS Wealth & Pensions, said that although advisers may want to help their clients, they should also check their professional indemnity cover as well as their permissions.
He said: “I can understand why some advisers feel the need to help their clients to put a claim forward and not charge for their time, particularly as CMCs often charge extortionate levels of commission.
“However, they do need to be careful because CMC work is now a regulated activity, and so it’s important for advisers to check what they’re doing constitutes a regulated activity.