Top claim trends for financial advisers, mortgage brokers and insurance brokers in 2023
08 February 2023
Every year brings new challenges for financial advisers and 2023 has the potential to see a rise in claims in a number of key areas. Here we pick out five trends that we expect to make headlines in the sector and which underline the need for robust insurance and broker expertise.
1. A new tranche of claims around British Steel Defined Benefit Transfers
As a result, employees were given the opportunity to decide what they wanted to do with their pension, and many sought advice from a Financial Adviser.
Approximately 9,000 members elected to transfer away into alternative arrangements, which their financial advisers helped them select. With hindsight some who transferred would have done better staying in the scheme. However, it must be noted we are also seeing a significant number who have benefitted by transferring.
The Financial Conduct Authority has been strong in its response. It is concerned that some firms gave bad advice and have ordered a S404 review, which is due to commence at the end of February. Insurers are currently considering their position and preparing advice for firms.
FCA Director of Consumer Investments Therese Chamber has already underlined the severity of the situation in a statement in November 2022.
She said: “The scale of unsuitable advice that we have identified was exceptionally high, almost 50%. There are firms who took advantage of the situation and enriched themselves. There are firms who have not done the right thing by steelworkers who have complained and there are firms who are still seeking to avoid their accountability.
“It is against that context that we have decided to proceed with a consumer redress scheme so that steelworkers can get what they worked for.”1
Claims are a certainty with the only real doubt being around how the review will unfold and how expensive it will be.
2. Claims related to the cost-of-living crisis
In a challenging economic situation, it is inevitable that people begin to look at their outgoings and investments to see how well they have done. They may question the financial advice given to them – and especially if the advice given no longer meets their needs.
We expect to see an increase in these kind of claims in 2023 as poor performance often exposes poor advice.
For example, if a client underwent a routine Financial Review this time last year, their disposable income available is likely to be very different to what they can count on now.
They may well be struggling to pay their bills – and simultaneously could be contributing into a long-term investment plan which they cannot stop paying into which might not mature for some years. Or perhaps bought life cover they now cannot afford and deem excessive.
It’s fair to say that financial advisors cannot have predicted at the time that Russia would invade Ukraine or that a cost of living crisis was around the corner but there will almost certainly be claims brought as investors are squeezed financially.
3. Claims hinging on poor mortgage advice
Variable rate mortgage payments seem to increase month on month with the Bank of England rate changing regularly, so those with mortgages may well be asking: “Was there a better option?“
If good deals have been missed by the advising firm causing delays and if a loan is no longer affordable then claims could arise.
Recent examples we have seen include an adviser who applied for a deal with a particular fixed rate with a High Street bank but then went on holiday, was unable to complete it, and on his return found the available rate had changed significantly.
Another adviser is offering £8,500 in compensation to a client because they missed a five-year deal due to delays in providing information and their client ended up with a far more expensive mortgage.
4. Claims related to investments and pensions
Investments, in common with mortgages, are more liable to attract claims at a time when the economy is struggling or under pressure.
Attitude to risk and capacity for loss will be questioned and people will ask: “Was the right product sold to me?”
Often, the catalyst will be how much disposable income an investor has – and most people have less now than a year ago. The picture has changed radically in the last twelve months.
Under normal circumstances, in a stable economy, investors may be content with smaller but reliable returns as long as they do not lose money. Others with a more adventurous outlook and greater capacity for loss are open to higher levels of risk knowing they could benefit from higher returns and are happy to take their chances.
In economic difficulties, that balance changes with the individual’s circumstances. Perhaps a –couple on good incomes would have been in the second category in the past. But now, possibly, one is earning less because they work on commission and the income has dropped. Perhaps their partner has been made redundant but the bills continue to increase. Suddenly they look back and think: “That investment was very risky.” Good documentation is the key to defending a complaint but the risk remains.
The same applies to pension advice, because poor advice is often exposed in a falling market: Was the transfer undertaken in a reasonable period or has the transfer value dropped? Are the investments appropriate to the new attitude to risk and circumstances of the investor? Hindsight is a wonderful thing and FOS apply it liberally.
5. Claims arising from equity release
Releasing tied-up equity in a valuable property is becoming increasingly popular for retired investors, who borrow money against their fully-owned property to help fund their life in retirement and boost their available cash. Daytime television is rife with advertisements.
But with property prices expected to drop, and interest rates rising, is it so attractive? Are there other ways to raise funds or savings which can be accessed rather than enter into a complex property loan arrangement?
We have seen claims from thwarted beneficiaries who expected to receive an inheritance but suddenly will not see as much money and are questioning whether their parents were badly advised.