There are many benefits of turning using a financial planner. Financial planners have the expertise to advise on how best to achieve your goals.
They can play a role in deciding where to invest your money to ensure it is working hard in pursuit of your ambitions. You are bound to think about how safe your money is with them.
A brief overview of the investment industry
Investments carry varying degrees of risk which bring with them the potential for long-term rewards. As well as the risk of whether a particular investment performs well, there are other risks too. It is natural to be concerned about what happens if a business you deal with goes bust, you are a victim of fraud, or if there is negligence.
To better understand this, it helps to know how the investment industry works. The regulator of the financial services sector, the Financial Conduct Authority sets the rules all firms must abide by and monitors their adherence to them. Where there is an issue between a firm and a customer, the Financial Ombudsman Service (FOS) investigates complaints and can force firms to pay compensation. Also, the Financial Services Compensation Scheme (FSCS), protects an investor’s money up to guaranteed limits.
These rules and guarantees are the same for everyone. Most Financial Planning firms, including us, will not handle your money. The custodian you have agreed to use will hold it and invest it based on your instructions. The FCA regulates every part investment of this process.
The FCA’s rules dictate investment assets cannot be directly accessed by the business who handles or manages them. Segregating assets is an important safeguard when businesses hit financial difficulties.
FSCS and insolvency
One of the biggest concerns you may have is a firm you invest with or into going bust and causing you to lose your money. The Government created FSCS in 2001 for this reason. If a company you have invested in or is handling your investments becomes insolvent, the FSCS protects your losses to a degree. Check the FSCS website for specific dates and terms.
- Long-term insurance (life and PHI): 100% with no upper limit.
- Annuity (being drawn): 100% protected.
- A pension only invested in the life office’s insured funds would have 100% protection. Where external funds are used or where a SIPP invests in a variety of assets, the position will depend on the investments used.
- Cash in bank/building society account: £85,000 per person for each separately authorised bank/building society (some banks share a license meaning only one set of £85,000)
- Investments: £85,000 per person
- Mortgage and endowment advice: £85,000 per person
- Investments, including mutual funds, self-invested personal pensions (SIPP) and onshore bonds, all fall within the FSCS remit. In many cases, there are additional protections. Where investments are held in trust, assets are often 100% ring-fenced and protected.
Fraud and misconduct
A common concern people may have is that they invest in something they should not have. Investing in the wrong thing could happen for many reasons such as an adviser mis-selling the product. What is to guard against negligent, or at worst fraudulent, behaviour?
The 2008 global banking crisis involved misconduct at the highest levels of the world’s biggest investment banks. Regulators around the world increased efforts to improve governance and regulation of the markets. They did this to protect ordinary investors’ money and to rebuild confidence in the system.
The FCA has improved governance and tightened regulations across the industry. They monitor conduct and investigate any alleged offences Anyone found guilty of an offence is liable to have their ability to trade revoked. Should service providers face financial difficulties, the ring-fencing of investment assets ensures most investors can be confident of getting their money back. The FSCS acts as a backstop to this.
Whoever you use to look after your wealth, you should check the Financial Services Register to view the status of your chosen firm and the regulated individuals.
If you are dissatisfied with anything and you do not receive a satisfactory response from the firm, you can take your concerns to the Financial Ombudsman. They can enforceable judgement which might include paying compensation for proven misconduct. The FCA has increased the FOS award limits to:
- £350,000 for complaints about acts or omissions by firms which take place on or after 1 April 2019,
- or £160,000 for complaints about acts or omissions by firms which took place before 1 April 2019and which are referred to the FOS on or after 1 April 2019.