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Bad Investment Advice Compensation

Bad Investment Advice Compensation

The financial cost of receiving poor investment advice can be stressful and ruinous. Find out how to make a claim for compensation if you lost money through the mis-selling of your investments.

FINANCIAL MIS-SELLING: This guide explains how much you could get through the Financial Services Compensation Scheme.

The FSCS might help you to recoup part of a financial loss if (both):

As a consumer, your rights on mis-selling extend to insurance, mortgages, and pensions. But, if you received bad advice from a financial adviser, you must follow the right procedures.

First of all, mis selling financial services is illegal in most countries. But, it would be appropriate to explain the exact definition of mis selling.

The negligent or reckless selling of products or services are circumstances of 'mis-selling'. In these situations, the sale is 'deliberately' misrepresented or unsuitable for the needs of the consumer.

A classic example:

The industry would regard the sale of a life insurance policy to a person with no dependents as mis selling.

The Financial Services Compensation Scheme

Investors should only consider the Financial Services Compensation Scheme as the last resort. As such, the level of FSCS compensation for investment mis-selling varies.

The amount you might receive depends on the basis of the claim. But, they only pay compensation for a financial loss. The categories of compensation limits are per person per firm, and per claim.

There are many different types of financial institutions in the United Kingdom. The FSCS compensation limits on bankrupt brokers and firms apply to:

The Financial Services Compensation Scheme has several roles. They will look into cases where people got sold the wrong kind of product, and lost their money as a consequence. They also deal with situations where a person or a company hands out bad advice and has since gone out of business.

This guide on bad investment advice compensation covers these main topics:


What the FSCS Scheme Will Not Cover

The Financial Services Compensation Scheme would not offer any redress or make a payment if:

Note: What if you do not qualify for the Financial Services Compensation Scheme? The Financial Ombudsman Service or Pensions Ombudsman can investigate a complaint for free.

Writing a Letter of Complaint for Comeback

All financial service providers have a duty of care to offer good investment advice. Even so, you can seek redress by complaining about bad or misleading advice.

Use this sample letter to file a complaint if a financial product does not meet your needs [PDF, 33KB].

Checking if a Financial Adviser is FCA Authorised

The FSCS covers the mis-selling of financial products and services in the United Kingdom. But, they will only pay compensation if the adviser was already authorised by the FCA or the PRU.

You can check Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRU) authorisation. Use the online register to search if you know the name of the firm or the adviser.

Note: Click to search the Financial Services Register through the Financial Conduct Authority.

Mis-selling General Insurance and FSCS

Have you been mis sold insurance services? If so, you may be eligible to claim compensation from the Financial Services Compensation Scheme. Contact FSCS if an adviser sold you a general insurance policy and the company has since gone broke.

How might a company or an adviser be guilty of mis-selling general insurance policies?

There are other circumstances where you might be able to make a claim for bad investment advice compensation through the scheme.

Here are three typical examples:

  1. The broker or financial adviser owes you money from a claim. The insurance company settles the claim with the agent. You can claim if the broker or adviser fails to pass on the money to you and they have since gone bankrupt.
  2. You hand over the money for your insurance premium to the adviser. You can claim from the scheme if the adviser went out of business before paying it to the insurance company.
  3. You are the victim of financial fraud. It is illegal for an adviser to tell you the premiums are higher than they actually are and they keep the difference.

Types of insurance not covered by the scheme:

Note: The scheme also excludes any general insurance policy arranged before the 14th of January 2005 and claims against advisers or brokers based in the Isle of Man or the Channel Islands.

How Much Can You Claim?

There is a maximum claim allowable from the Financial Services Compensation Scheme for mis-selling insurance. As a rule, the kind of insurance policy you had would determine the amount you get.

This also applies even if you received bad or misleading insurance advice some years ago. You would usually get the full amount back (value of a claim) for compulsory insurance claims. An example would be for third-party car insurance policies.

The Financial Services Compensation Scheme could pay up to 90% of the value of the claim for other insurances. A typical example would be for the payments for coverage to insure house contents.

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So let's take a closer look:

Suppose you lost £300 as a result of being mis-sold a financial product (e.g. household contents insurance). The highest amount of compensation the scheme could pay your claim would be £270. There is no upper limit to this kind of bad investment compensation. But, the most you could get remains at 90% (for any single claim).

Note: There are several ways of contacting the FSCS including online, by phone, or by postal methods.

Mortgage Mis-selling and FSCS

The Financial Services Compensation Scheme also pays bad financial advice compensation on mortgages. There are some limits to the payments for losses. But, the firm which gave out the bad advice on your mortgage must have ceased trading.

Take a look at some examples:

How Much Can You Claim?

There is a maximum claim allowable from the Financial Services Compensation Scheme for mortgage mis-selling. The FSCS scheme only pays out for financial losses.

The most anyone can get would depend on when the actual mortgage advisors went bust. Thus, the amount you can get would relate to when the scheme considers the firm to be 'declared in default'.

An Example: Losing £28,000 on a mis-sold mortgage (declared in default) before January 2010 means you could recoup the full amount. But, you would only get £48,000 compensation if you lost £50,000.

Bad Investment Advice or Poor Investment Management

Did you lose money because negligence or poor investment advice by financial advisors? The scheme deals with claims against bad investment management and poor investment advice.

Typical examples include:

Note: Discuss the loss issue with the company management team if they are still trading. Contact the Financial Services Compensation Scheme if the organisation has closed down.

There is no 'automatic' entitlement to compensation on a poor performing investment. Most money advisers will warn you about the risks of losing cash when they sell you the policy.

Grounds for claiming compensation after a financial loss include:

An Example:
The direction you got from a broker was to invest in a particular kind of investment. But, it turned out to be something else. In simple terms, you relied on the information given to you by an 'expert' when buying an investment.

Let's say you asked for an investment plan that had a very low risk of losing your money. But, your financier recommended investing in a high-risk investment instead.

You may have a legitimate claim for FSCS compensation if you lost money as a result of this speculation.

Note: Deliberately taking on a high-risk investment (and then losing money) would not be valid grounds for a claim.

How Much Can You Claim?

The FSCS scheme only pays out for financial losses. The most anyone can get would depend on when the actual mortgage advisors went bust. Thus, the amount you can get would relate to when the scheme considers the firm to be 'declared in default'.

An Example: Losing £28,000 on a mis-sold investment (declared in default) before January 2010 means you could recoup the full amount. But, you would only get £48,000 compensation if you lost £50,000.

Claim from the Financial Services Compensation Scheme

There are a few things to check before you make a claim through the FSCS, such as:

The FSCS is a statutory deposit insurance and investors compensation scheme in the United Kingdom. It operates for the customers of authorised financial services firms.

But, before you contact them you should always try to claim your money back from the company liquidator. If that fails, you can make a claim from the Financial Services Compensation Scheme.

You can claim from the Financial Services Compensation Scheme online on you can print off the documents and send them off by post.

Bad Investment Advice Compensation Guide for the United Kingdom