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The Financial Services Compensation Scheme has told financial advisers they must take out better professional indemnity insurance to help pay out consumers over the huge number of claims being made for negligent financial advice.
Mark Neale, the FSCS’s chief executive wants PI companies to take a bigger share of the compensation bill for things like mis-sold pensions, SIPPs and other mis-sold financial products that are currently blighting the financial services industry.
How Claims For Negligent Financial Advice Work
If a customer has a legitimate complaint about the advice they received, the claim should go to the adviser directly (either brought about by the individual themselves, or via a Claims Management Company. Should they uphold the complaint and decide to settle, the adviser will either pay out of their own reserves, or claim on their PI insurance.
Should they reject the complaint, the complainant can then go to the Financial Ombudsman Service to settle the dispute.
But because of sometimes inadequate cash held by some advisers, or inadequate PI insurance, financial advisers simply close-up shop, leaving responsibility for paying the claims on the FSCS – the lifeboat scheme.
Only time will tell if financial advisers will take note and review their insurance arrangements.