Advisers could be made to pay £66 million to compensate clients of Integrity Financial Solutions, after it was declared as being in default by the Financial Services Compensation Scheme (FSCS), according to a report on the Citywire news site.
Integrity Financial Solutions – who are a financial consultancy dealing with businesses and individuals specialising in mortgage, savings and pensions – have been found at default by the FSCS, and now advisers may have to cover the cost of the compensation bills.
The FSCS has already had to step in once and pay out a claim relating to the company, after it had sold poorly-performing geared traded endowment policies (GTEPs) and foreign exchange investments.
It has also been speculated that a further 100 claims have been made which total a whopping £3 million.
The chief executive of claims management firm FinancialAdviceLiability, Paul Nedas estimated that the compensation claims to fall onto the FSCS would be around £66 million.
Peter Yeldon, who is the former liquidator of Integrity, went beyond this figure, saying that the claims could reach up to £80 million.
The FSCS restricts the amount of compensation paid to clients to £50,000 for an individual and £100,000 for a couple.
Because Integrity Financial Solutions have now been placed in the FSCSs investment intermediation sub-class, it means advisers will have the responsibility of covering the cost of the compensation.
The interim advisers are already paying out to cover the cost of compensating the clients of Keydata Investment Services, stockbrokers Pacific Continental and Square Mile Securities, which totals £80 million.
Lee Robertson, managing director of Investment Quorom, spoke to Citywire about how unfair it was that advisers have to pay for the firms mistakes.
“This is very frustrating for advisers…You work really hard to have a robust due diligence process to screen things like this out, while others invest and get caught, and you end up having to bail them out.
“It’s ridiculous, and there needs to be thought about this. The FSA has an imperative to have a stable financial system and that includes advisers.”
After an investigation in May the FSA censured Integrity after it failed it role as a product provider, and advisers of GTEPs.
Integrity had sold 601 GTEPs through advisers and 58 direct to investors.
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Tags: Financial advisers