Over the past decade we have seen the rise of claims management companies (CMCs), and large sums of money being moved from (largely banking) providers to consumers through the payment protection insurance (PPI) mis-selling scandal.
Financial advisers and product providers have not been materially impacted by CMCs so far, and it could be suggested they have taken their eye off the ball as to what is arguably one of the largest risks about to hit this sector with a vengeance.
In recent years people making PPI claims via CMCs have, arguably, pretty much been given automatic redress, regardless of the suitability of the sale that led to the claim. It is also becoming clear CMCs have proactively driven PPI claims that did not exist through aggressive cold calling and web-advertising techniques.
As the deadline for making PPI claims rapidly approaches (29 August 2019), the resources and profits made from this exercise are now training their sights on other sectors of financial services, and prominent among them is the Sipp sector.
Several leading Sipp firms have cited APJ Solicitors in Manchester as a clear example of this. Built around PPI claims, they now appear to be targeting the pension and investment sectors for mis-selling (see APJ's comment below).
They represent themselves as regulated solicitors, but are focused on CMC activities that should be (and will soon be) fully regulated by the Financial Conduct Authority (FCA). On their own website they talk about pressure selling, unexplained fees, and unsuitable risks. Nowhere on their digital presence do they talk of the 30% plus-VAT fee they take from some consumers out of their successful claims.
Clearly, they are one of many, but APJ has forced at least one Sipp firm out of business, and are directly advertising against a range of others. It is a matter of time before one of their targets takes civil action against them, or they force others out of the sector. This will have high contagion to the IFA sector, as the vast majority of Sipps are advised products.
CMCs are not investing for the future of either the sector or consumer benefit. They are taking out profits where they find vulnerability and a weak Financial Ombudsman Service (FOS), then moving to the next when one pool runs dry.
We must ask whether to date the players in the sector, the regulatory/statutory bodies such as the FCA and the FOS, and the Solicitors Regulatory Authority (SRA) have abjectly failed to manage the emergence of CMCs in a coordinated and safe fashion. Equally, we should ask: is this the tip of the iceberg where consumer confidence in financial services will take another irreparable hit?
It is in the public interest that support is available when genuine failure has occurred in either the advice or product process. Is it however in the general interest of the market for CMCs to be given free rein?
Will their actions lead to further professional indemnity (PI) insurance turmoil, financial regulation, Financial Services Compensation Scheme levies on the sector, and in the worst case the commercial failure of otherwise safe providers?
It remains early stages, but we have to keep a check on whether CMCs are here in the public interest, or here to create public peril. This is a subject we will come back to many times in the coming months and years.
Phil Smith is chief executive of Sipp and platform Embark.