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):

• Your broker or the financial institution has gone bust.
• Their negligence was the reason that you lost money.

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.

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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:

• Banks and building societies
• Financial advisers
• Insurance companies

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:

• Receiving misleading advice on investments.
• The mismanagement of investments.
• The mis-selling of mortgages or insurance.

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What the FSCS Scheme Will Not Cover

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

• The company that gave you slack investment advice is still trading. So how can you fight back? In this case, you must first complain direct to the broker or the company. Taking the case to the Financial Ombudsman Service would be the next step if you remain unsatisfied.
• The company was not authorised by the Financial Conduct Authority (FCA) or the PRU (see below).
• A failure to perform well enough was the reason behind the investment loss (e.g. shares or SIPP pensions). The investor compensation scheme would still apply if it was mis-sold or you had misleading advice about how well the plan would perform.
• It was an overseas based company. Even so, some exceptions might apply to European financial services companies.

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.

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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].

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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.

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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?

• By selling payment protection insurance (PPI) that includes redundancy cover if you are out of work, self-employed or retired. Why would that be mis selling insurance? Because in most cases, a claim would get turned down.
• By forcing you to buy their own payment protection insurance (PPI) before approving a loan? Why would that be mis selling insurance? Well, it is not illegal for them to insist on you having this type of insurance. But, they cannot force you to buy it from their company.

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:

• Aviation insurance
• Credit insurance
• Marine insurance
• Reinsurance (often used for tax mitigation by a ceding company)
• Transport business insurance

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.

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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.

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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:

• The firm advised you to ‘self-certify your income‘ (e.g. for self-employed workers). Following that, you got a mortgage that was more expensive than you actually needed.
• A company sold you a mortgage that meant you would still be making payments after retirement. If the adviser failed to check that you could keep up the repayments after you retired, it would be a mis-sold mortgage.
• The company sold a mortgage that was unsuitable for you at the time. It would be misleading if they failed to advise you about other plans available.
• Suppose a firm advised you to switch mortgages – it was not uncommon around the 1980s. They should have given you an adequate explanation of how and why the switch would be of benefit to you. This could be an example of mortgage mis-selling if the switch resulted in a loss of funds.

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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’.

• Mortgage mis-selling claims against one firm declared in default before the 1st of January 2010:
  • The scheme would cover the first £30,000 and then 90% of the next £20,000 (with an upper payment threshold of £48,000).
• Mortgage mis-selling claims against one firm declared in default on or after the 1st of January 2010:
  • The scheme would cover a claim up to the maximum of £50,000.

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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:

• Long-term investments like mortgage endowments
• Managed funds
• Personal pension plans
• Stocks and shares

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:

• Receiving bad, slack, poor, negligent, substandard, or misleading advice.
• The irresponsible or neglectful management of fiscal investments.
• Cases of misrepresentation or fraudulent activities.

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

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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’.

• Investment mis-selling claims against one firm declared in default before the 1st of January 2010:
  • The scheme would cover the first £30,000 and then 90% of the next £20,000 (with an upper payment threshold of £48,000).
• Investment mis-selling claims against one firm declared in default on or after the 1st of January 2010:
  • The scheme would cover a claim up to the maximum of £50,000.

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Claim from the Financial Services Compensation Scheme

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

• In some cases, you can claim money from a dissolved company (or some property). Check to see whether you have any entitlements to money from the liquidators of the company that went bust.
• Check to see if the adviser or the firm shows up on the Financial Services Register as authorised by the FCA.

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.

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