Financial Services Compensation Scheme (FSCS) chief executive Caroline Rainbird has provided a worrying insight into current levels of claims the lifeboat scheme is facing.
She said that while “many advisers are exemplary and perform an important role in the financial ecosystem, […] there are a small number of rogue actors, and we know from listening to our customers that they do not always get the sound financial advice they need that is appropriate for their personal situation”.
Rainbird revealed that as many as 78% of claims currently sitting with the FSCS are linked to financial advice, something she deemed “truly alarming”.
“We expect these costs to remain high for years to come as most of our customers come to us many years after the harm of poor advice took place,” she added.
Bad advice tactics
The FSCS said that the vast majority of customers are being advised to transfer their entire pension pots into riskier Sipps, resulting in them losing “substantial amounts of money”.
In other cases, the chief executive explained, investors were wrongly labelled as either ‘high net worth’ or ‘sophisticated’ in order to invest in opportunities “far riskier than their appetite allowed”.
Rainbird continued: “In fact, 95% of customers who have made a claim with us since 2018 earn a salary of less than £100,000 ($125,360, €117,054), which is the current definition of a high net worth individual.
“It goes without saying that tackling the issue of poor advice is the right thing to do for consumers, but it also benefits the industry. If we address this root cause of consumer harm, I believe it is one of the ways we will be able to sustainably reduce the levy over the long term.”
Recently, the FSCS has called for an increase to its current £85,000 compensation limit, as savers could have been given £1bn more in redress had it not been for the cap.
