Editor’s Comment: FSCS cost and benefits must balance

I have every sympathy. Another firm failing can only mean the FSCS stepping in to pay the bill and extra cost for planners to meet the FSCS levy.

The latest failure this week was Solutions Financial Services (UK) Ltd. This Hull-based advice firm, an appointed rep of two networks, is the latest default of an advice firm which offered SIPP and pension advice.

This month alone we have seen over half a dozen similar defaults.

I suspect the Claims Management Companies are playing a role here in hunting down ex-clients to encourage them to claim but that’s not always the case and, in any event, the CMCs are not going to disappear (although it is important that they are now regulated by the FCA).

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The failed firms seem to have a lot in common. Often, though not always, they have used multiple trading names and many were offering SIPP and pension advice, sometimes pension transfers. Adding this to the BSPS debacle, it’s clear there was a whole mob of advice firms between 2005 and 2015 or so engaging in high risk, product-focused advice, often connected to pensions.

There was clearly something of a feeding frenzy with pension savers and small investors, as ever, paying a high price.

In hindsight much of this business was toxic for the firms involved even if it may have been lucrative at the time. However, while the FSCS and others will no doubt chase assets at these failed firms to try and recoup losses, most of the directors will get away lightly. I doubt more than a fraction of the losses are ever recovered.

Many planners will no doubt be fed up with the endless procession of advice companies going bust and leaving others to clear up their mess. The fact remains, however, that for consumers and investors the FSCS mark is still worth its weight in gold in terms of building investor confidence.

Whatever the pain, the FSCS guarantee of protection is an essential promise for small investors. It’s a money-back guarantee (well most of your money anyway) if your provider or adviser goes bust.

The challenge will be to stop the FSCS being overrun with claims because the CMCs are chasing every disgruntled investor they can find. There also needs to be a balance between the cost of the FSCS and its benefits.

At present, the FSCS is a cornerstone of the investor protection regime and it would be step backward if it had to be diluted or restricted to make it more affordable. I do not envy the FSCS board in trying to strike the right balance on this however one must be achieved if the FSCS is to have a future.

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