Investors dealing with UK authorised and regulated financial services companies receive a great deal of protection in the event of things going wrong.
If you make a complaint against a financial services firm, either a product provider or an adviser, then you are able to refer your complaint to the Financial Ombudsman Service (FOS) if the firm rejects your complaint.
Referring a complaint to the Financial Ombudsman Service is free of charge to investors.
Advisers and other firms must pay a case fee of £500 for each complaint made, although this case fee is waived for the first three complaints made in a year.
There are proposals that this free case limit be increased to 25 complaints a year.
The Financial Ombudsman Service is also funded through an annual levy on regulated firms.
Another layer of protection that is afforded to UK investors is the Financial Services Compensation Scheme (FSCS). This provides compensation payments to those who have invested in failed schemes or received unsuitable advice, in the event that the firm has been placed in default.
The FSCS is also funded by a levy on regulated firms. Whilst paid for directly by advisers and product providers, it is investors who pay for this cost of compensation indirectly through product and advice charges.
This week we have seen FSCS chief executive Mark Neale suggest that the funding of the compensation scheme could move to a pre-funded and risk-based model in the future.
This could result in a small premium being added to each investment made, with the size of this premium depending on the riskiness of the investment scheme.
We would expect to see mainstream investments have a small compensation premium attached, and non-mainstream investments using esoteric assets charging a larger risk premium.
The FSCS is a really important compensation scheme that delivers a great deal of confidence to those seeking advice and making investments in the UK.
It is only right that, in the event of things going wrong, robust safeguards are in place that will ensure investors do not lose out due to poor advice or failed investment schemes.
We hope that a few changes to the way in which the FSCS is funded will help to redress the current unfairness in the way some advisers (and their clients) have to pay for the reckless actions of others.
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