Out-of-pocket investors welcome news FSCS could scrap £50,000 comp limit

News that the UK’s Financial Services Compensation Scheme’s current £50,000 limit on the payout to victims of bad financial advice could be scrapped has given some previously-discouraged out-of-pocket investors cause for optimism, they and their advisers say. 

Although some say they are beginning to wonder if they will ever see so much as a penny back from the tens of thousands of pounds of savings they lost as a result of being badly advised, they say the thought that if they do win they will not be limited to receiving an amount that, in some cases, is considerably less than they originally had invested, is at least encouraging.

The news that the FSCS limit might be scrapped came in a monthly blog published yesterday, which had been written by FSCS chief executive Mark Neale.

The FSCS is, of course, the UK’s financial safety net of last resort, which steps in to help victims of failed UK regulated financial services businesses when other sources of potential redress have been exhausted – for example, when a company has gone into administration, without any assets to speak of.

Among those who said he was glad to see formal recognition that the £50,000 limit is too low was Ron Leeman, a British citizen now living in Thailand who lost his life’s savings of £115,000 through a UK QROPS trustee which recommended that it be invested in a fund marketed by a now-defunct Australian fund manager, LM Investment Management. LMIM collapsed in 2013, taking with it the retirement savings of countless investors around the world.


Leeman,  pictured, who is 66 years old and who had planned to live out his days in Thailand, said he is now “actively considering having to move back to the UK to find work” because he is struggling to make ends meet in Thailand.

“I saved all my life to have a happy retirement, and that has been taken away from me,” he said.

Rachel Papworth, a British investor who says she lost in the ballpark of around £100,000, after being advised to put it into LM Investment Management, via the now-failed Brooklands Trustees by a UK adviser who subsequently went abroad and now, she believes, is still working as an adviser elsewhere in Europe, said she was also encouraged by the news.

“The £50,000 limit on FSCS compensation is too low to protect pensions,” she said.

“The government is rightly keen to encourage people to save for retirement, but I saved my hard-earned money prudently, and I’ve lost it all. I’m gutted to have lost the safe future I planned for.”

Neale: ‘Little logic’

In his blog, Neale noted that there was “little logic to protecting retirement savings in insurance products without limit”, yet at the same time restricting protection for mis-selling to £50,000.

“This is confusing for consumers and corrodes confidence,” he said.

“And it leaves consumers with retirement pots in excess of £50,000 in a quandary, because it makes no sense to break the pot up for the purposes of seeking advice. An adviser needs to see the full picture.”

He went on to note that there was a “sound case for harmonising retirement savings limits”, and that FSCS research had shown some 60% of British MPs supported the idea of harmonisation.

Good idea ‘in principle’…

Damon Parker, a founding partner of the London law firm, Harcus-Sinclair, which,  as reported here in July,  is representing a group of aggrieved investors based in Asia known as the LM Investor Victim Centre (LMIVC), said he supported Neale’s idea “in principle”, but noted that there could be problems in funding such a scheme.

“I support the idea in principle because I have seen many cases where people’s life savings have been wiped out through no fault of their own, but, because they have been unable to seek redress from anyone who is still solvent, they have been unable to recover their losses, and so have been restricted to recovering £50,000 from the FSCS,” he said.

“I do, however, have a concern about how an infinite indemnity scheme of last resort would be funded. The financial services advisory community, which already grumbles about its FSCS levy, would be unlikely to wish to pay more into the fund.

“A possible alternative would be to require financial services firms – those that create and manage financial products, as well as those that market and advise on them – to carry sufficient insurance on sensible terms.

“The usual reason for the FSCS needing to be called on is that financial services firms, unlike solicitors and accountants, tend to have insurance that protects them only for the year in which the claim is asserted against them. If they stop insuring themselves, or their insurers exclude a risk that they are worried about, the consumer is unprotected, and their advisers or the scheme operator protect themselves from being sued because of their financial weakness.

“If, however, the insurance was on terms that protected the consumer against the actions of the firm in the year that was covered by the insurance, the FSCS would find that it was called on much less frequently.”

‘Timely’ to consider scrapping cap

Timothy Hampson, associate solicitor with Wixted & Co, another London-based legal practice which, he says, specialises in negligence claims involving financial services companies, says Neale’s observations about the FSCS’s shortcomings is timely, since “we are increasingly finding that potential defendants are uninsured and unable to meet claims, so the FSCS is a forum which clients have to use much more often than they used to”.

He adds: “The inconsistency described by Mark Neale is something that we have noted for a number of years now. It would be a great boost to the victims of negligent financial advice if the FSCS were to follow its CEO’s proposal and increase the limit of its compensation from £50,000.

“Sadly, in many cases that we have seen, the compensation that the FSCS can award is simply not enough, and leaves investors out of pocket with no other avenue for further recovery.

“The issue is compounded by the fact that many professional indemnity insurers often seek to avoid cover and refuse to indemnify firms, [which] leaves the FSCS and consumers to carry the cost.”

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