I was recently introduced to a potential new client who had been ‘sold’ an unregulated investment and as has been the case much too often recently, this turned out to be a bogus investment. The poor individual is now looking at nearly a 6-figure loss on the investment.

The worrying thing in this case is that the recommendation / invitation to invest was made alongside his normal planning with his financial planner. It is really sad when you come across these situations and I admired the individual’s resilience in the face of the loss.

They have made a complaint to the regulated company involved and are now awaiting a response, fingers crossed this is positive and in their favour. Historically, they would have then been able to complain to the Financial Services Compensation Scheme (FSCS), however this may now be a small window of opportunity as the FCA has released a discussion paper suggesting that the FSCS should reduce its areas of cover.

Headlines suggest unregulated investments, higher risk investments, and investments taken out by those who are deemed high net worth may be excluded from the compensation scheme. The FSCS is funded by the industry and last year our FSCS bill wasn’t an insignificant figure, however at least it felt like this service was potentially there for those who fall foul of poor advice / service. 

My big concern on these changes, and we are yet to review the small print, is those individuals who are genuinely ‘mis-sold’, the business goes into liquidation and the individuals could see their life savings disappear. We don’t like paying the high FSCS levy but if it is doing good then it is a necessary evil for the industry.

I am also concerned about what the definition of a high-net-worth individual will be. The FCA have their own definition, which could be used, but again these individuals will need to be really careful who they take advice from as the FSCS will unlikely stand behind any untoward advice received.

I am sure there are some people far more in the know than me that are dealing with these changes, but I do hope there is some thought given to the knock-on effect of any changes on those that need the support the most. The individual I met is fighting hard to claw back their position as best possible and, fingers crossed, they are returned to parity shortly and can go on with their lives.

Thanks for reading and