5 October 2020

PIMFA urges Regulator to work more closely with industry to rebuild levels of trust in fair FSCS outcomes

Nearly two-thirds (64%) of financial advice business owners and wealth management chief executives do not trust the Financial Services Compensation Scheme (FSCS) to deliver fair outcomes for consumers or their firms, a survey of PIMFA members has revealed.

The survey of 84 business owners and chief executives of member firms of PIMFA, the trade association for the wealth management and financial advice industry, also reported that levels of trust in the FSCS have remained unchanged, or have not improved in the past five years for 60% of firms.

Results from the survey revealed the extent to which the FSCS is putting firms under increased financial pressure, with 45% of member firm chief executives or business owners reporting seeing increases in their FSCS levy bill of more than 100% in the last five years. More than four-fifths (82%) of members said that FSCS costs now accounted for at least 20% of all outgoings, excluding payroll and accommodation costs.

In addition, the survey results disclosed that the cost of Professional Indemnity Insurance (PII) premiums among its member firms amounted to 56% of FSCS costs on average. Over a quarter (26%) of firms reported PII premiums had increased by more than 100% in the last five years and over half (56%) reported their current PII premiums contained restrictions, including on historic Defined Benefit transfer advice leaving firms without cover for advice given before the insurance policy began.

Moreover, less than a fifth (17%) of firms described themselves as confident of being able to secure PII terms that were affordable in the next 12 months.

Following the results of its member survey PIMFA is urging the Financial Conduct Authority (FCA) and HM Treasury to work more closely with firms to rebuild trust in the FSCS.

The findings from PIMFA’s research indicate that causes for the an absence of trust in the FSCS were most likely linked to rising costs over the preceding five years; distortions in the market that encouraged poor firm behaviour and a perceived willingness on the part of the FSCS to settle claims when there was little basis to do so.

Liz Field, Chief Executive of PIMFA, commented: “The FSCS plays an absolutely vital role in protecting consumer savings and we recognise that the trust it engenders for consumers has a benefit to our firms.

“But the results presented in this survey point to a wider disconnect between a profession, which seeks to deliver the best possible outcome for consumers, and a regulatory system that most firms see as providing inadequate support at best, or failing both consumers and firms alike at worst.

“Every single person that has had to use the Financial Services Compensation Scheme has suffered a bad outcome that it would have been much better to avoid. Government, regulators and industry must work together to ensure that, ultimately, policy is designed in such a way that in the future consumers only have to rely on the compensation scheme in extreme and unpredictable circumstances.

“Poor firm behaviour and harmful products must be identified quickly, enforcement action taken swiftly and all parties commit to ensuring that claims upon the FSCS begin to fall rather than continue to rise.”

Commenting on the findings of the research, Caroline Rainbird, Chief Executive of FSCS, observed: “We recognise the problem that rising costs have for advisory firms against a challenging economic backdrop. While there is no simple solution to what is a complex problem, we take a three-pronged approach to minimise the elements of the levy that FSCS can control. The first is our efforts to continually innovate so that our management costs are as low as possible, which is shown by our like-for-like claims handling costs falling by 8% in 2019/20.

“We make recoveries wherever possible and if cost effective, and have recovered £375m over the past five years. Finally, under the Prevent workstream in our five-year strategy, we collaborate with our regulatory and industry stakeholders to help prevent future failures and drive better outcomes for consumers, with a view in the longer term which in turn leads to lowering future compensation costs and therefore reduced levy bills for advisers.

“We know that consumers have a high level of trust in FSCS and we want this to be mirrored by the advisory community. We are completely aligned with PIMFA in their view that every consumer who has to use our service has suffered a negative experience that they would subsequently like to have avoided. It is crucial to tackle the root causes of the problem, not just the symptoms, as this will lead to a sustained reduction in the levy and more relevantly for all concerned – including the industry – an increase in good outcomes for consumers. We will continue to meet regularly with all parts of the industry, including PIMFA, to help achieve these two important elements.”

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Notes for Editors

Read PIMFA’s report on the survey results here – ‘A rising tide lifts all boats: Member insights on FSCS & PII costs.

About PIMFA – the Personal Investment Management & Financial Advice Association

· PIMFA is the trade association for firms that provide investment management and financial advice to everyone from individuals and families to charities, pension funds, trusts and companies.

· The sector currently looks after £1.5 trillion in private savings and investments and employs over 55,000 people.

· PIMFA represents both full and associate member firms. Full members provide a range of financial solutions including financial advice, portfolio management, as well as investment and execution services. They assist everyone from individuals and families, to charities and pension funds, all the way to trusts and companies. Associate members provide professional services to the PIMFA community.

· You can read PIMFA’s positions on FCA Supervision in its Future of Supervision white paper.

· PIMFA leads the debate on policy and regulatory recommendations to ensure that the UK remains a global centre of excellence in the wealth management, investment advice and financial planning arena. Our mission is to create an optimal operating environment so that its member firms can focus on delivering the best service to clients, providing responsible stewardship for their long-term savings and investments.

· PIMFA was created in 2017 as the outcome of a merger between the Association of Professional Financial Advisers (APFA) and the Wealth Management Association (WMA) with a history as a trade association since 1991 – read more.

· Further information can be found at www.pimfa.co.uk

· To become a member of PIMFA for access to training, benefits and discounts, please visit https://www.pimfa.co.uk/become-a-member or contact us directly at membership@pimfa.co.uk

Contact

For further information on this release or other press matters please contact:

· Matthew West, PIMFA PR Manager – MatthewW@pimfa.co.uk, +44 (0)20 7382 0376 / +44 (0) 7843 903258
· Sheena Gillett, PIMFA Communications & PR Director – sheenag@pimfa.co.uk, +44 (0)20 7011 9869 / +44 (0)7979 493225