Opinion - Speaking up

With the FCA proposing an increase in compensation limits for the ombudsman, Keith Richards explains why it is crucial to make sure the right balance is stuck between consumer protection and access to advice

Our last graduation ceremony for 2018 was held in the Great Hall at Aldermanbury, with more than 400 members and guests in attendance to celebrate these special achievements. The first ever father and son graduation made it an extra special occasion.

It reminded me of the amount of work that goes into maintaining and expanding our profession, developing high-quality, qualified advisers who can give full financial advice.

I am also reminded of the work that advisers do up and down the country to expand financial awareness among young people. So far, we have an amazing 535 volunteers for our Discover Fortunes programme and have trained 163 volunteers. Our corporate partners on the Discover Fortunes programme are already engaging with 876 young people.

As a professional community, we do everything we can to expand access to advice and high-quality guidance. We do just the same thing when we speak out about regulatory issues – we are not a trade association representing the interests of its members, but a professional body promoting the profession and championing the public interest.

As a professional community, we do everything we can to expand access to advice and high-quality guidance

However, speaking out in the public interest does not mean supporting more regulation for the sake of it. Sometimes, it means questioning new regulation when unintended harm for consumers outweighs the more obvious benefits.  

Value for consumers

A good example of this is the UK Financial Conduct Authority’s consultation on compensation limits for 
the Financial Ombudsman Service, in which it has proposed to increase the limit for complaints from £150,000 to £350,000.

We all agree that, overall, the ombudsman provides an invaluable alternative to the courts for retail consumers.

We also know that since the £150,000 limit was introduced in 2012, there have been huge increases in property values in London and the southeast, which means that disputed claims for home insurance or critical illness insurance may go through the £150,000 barrier.

But inflation during this period has been around 2.5% per year (a 15% rise in prices during the period), so a rise of more than 130% in the compensation limit means we have to ask some serious questions. According to the Office for National Statistics, the average property owned by households in the UK in 2016 was worth £173,000, and the average defined benefit pension was worth £78,000, so the average consumer will gain no benefit at all from such a huge increase in the compensation limit.  

Unintended consequences

The people who have most to gain from this will tend to be wealthier, older and living in the London and the southeast. The people who will lose out will be younger, on lower incomes and living in the rest of the UK. The Financial Advice Market Review in 2016 showed that declining numbers of financial advisers, as well as uncertainties over liabilities and the cost of professional indemnity insurance, had led to an advice gap in the UK.

It stated: “The UK already has a high-quality financial advice market, with much to recommend it…It is important to expand access to high-quality guidance services.’

It also noted: “The recommendations set out in this report seek to preserve and build on the strength of the existing system, while supporting the development of a market which is affordable and accessible to all.”

During the coming months, we will be speaking up for members of the public who have been most affected by the advice gap, to make sure that the right balance is stuck between consumer protection and access to advice – so we can see more people graduating into the profession, just like we did in September.