Personal Finance with Nic Cicutti

YEARS AGO, long before the phrase "pensions mis-selling scandal" became a favourite stock-in-trade for personal finance journalists (and victims of the mis-selling itself, of course), someone had the bright idea of setting up an Investors' Compensation Scheme

Anyone who had been sold a wrong product, or was the victim of fraud, would be able to appy for compensation from the ICS.

Almost immediately, however, a snag revealed itself. If you were an aggrieved punter who had suffered at the hands of a big insurer, and the firm refused to admit its responsibilities, the option available to you was to go to the Insurance Ombudsman.

If the Ombudsman found in your favour, he could award compensation of up to pounds 100,000. Clearly, given the scale of the insurance firms involved, they could easily afford to pay out.

On the other hand if, clients of independent financial advisers (IFAs) succeeded in proving the IFA guilty of negligent or fraudulent advice and his professional indemnity insurer refused to pay up on his behalf, the only course of action for him was to shut up shop. At which point the ICS would step in. But its compensation limit was 100 per cent of the first pounds 30,000 and 90 per cent of the next pounds 20,000, or a maximum of pounds 48,000 in all.

Earlier this week, the new super-regulator, the Financial Services Authority, which has taken over from several other smaller City watchdogs, issued a consultation document on a single financial services compensation scheme.

The concept is laudable. There are at present five separate schemes which provide compensation if a firm collapses while owing money to investors, depositors and policyholders. Providing a one-stop point of access to consumers simplifies matters enormously.

Instead of having to chase round between differenb schemes, victims would be able to go to a single source for redress.

So far so good. Except that nowhere in the FSA consultation document is there any suggestion that the varying compensation limits be adjusted to match each other.

This means that if a bank or building society go bust, the maximum compensation limit is a maximum of pounds 18,000 (90 per cent of pounds 20,000). The ICS limit is higher, but highest is that for compulsory insurance: there is no maximum.

The FSA admits that if differing compensation limits were inflation proofed, the depositors' schemes would now pay out up to pounds 32,000, while the maximum ICS award would rise to pounds 70,000. But it claims that only 4 per cent of claims are over the current pounds 48,000 limit, while 73 per cent are under pounds 15,000.

Of course, the opposite conclusion might be drawn, that the current limit has unfairly prevented a minority of wronged customers from achieving rightful compensation. Moreover, this denial leads to a bizarre lottery: a insurance salesman's client, will probably be OK. But an independent adviser's client might get a smaller payout.

If, as the FSA claims, it wants to promote "market confidence" while protecting consumers at the same time, this is an area it must address forthwith.

Meanwhile, for readers of this newspaper, the search for a decent independent financial adviser is itself a fraught issue. That is why The Independent has published a free 20-page Guide to Independent Financial Advice, which tells you the areas in which an IFA can help and how to go about finding one. It comes with a list of names and telephone numbers to whom you can go for help. Call 0117 9712932.

Apologies, by the way, to all those readers who have tried unsuccessfully to obtain free copies of the Guide to With-Profits Bonds and the Guide to High Risk/High Reward Investments.

I know your patience is sorely tested. However, if you call 01777 839205, the nice people at that number will send you a copy of the with-profits one. Calling 0800 374413 will net you the high-risk guide. By the way, there's still space for willing volunteers to take part in our free investment makeover by Whitechurch Securities, a firm of investment specialists. Write to: Nic Cicutti, Investment Masterclass, The Independent, One Canada Square, Canary Wharf, London, E14 5DL.

general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
Have you tried new the Independent Digital Edition apps?
Life and Style
ebookNow available in paperback
ebookPart of The Independent’s new eBook series The Great Composers
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Ashdown Group: Trainee Consultant - Surrey/ South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Recruitment Consultant / Account Manager - Surrey / SW London

    £40000 per annum + realistic targets: Ashdown Group: A thriving recruitment co...

    Ashdown Group: Part-time Payroll Officer - Yorkshire - Professional Services

    £25000 per annum: Ashdown Group: A successful professional services firm is lo...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before