Compensation if you’ve lost money through mis-selling

If your adviser has gone bust and you’ve lost money because of their negligence, you might be able to get something back through the Financial Services Compensation Scheme. Check your rights for mis-sold mortgages, pensions, insurance and other investments and find out when and how to make a claim.

• How the Financial Services Compensation Scheme works
• General insurance mis-selling and the scheme
• Mortgage mis-selling and the scheme
• Poor investment advice or investment management
• How to make a claim
• More about the Financial Services Compensation Scheme

How the Financial Services Compensation Scheme works

The Financial Services Compensation Scheme can pay compensation up to certain limits if you lose money when a:

• bank
• building society
• financial adviser, or
• insurance company

goes bust.

It also looks at cases where you have been sold the wrong kind of product and lost money, and the person or company that gave you the advice has gone out of business.

Here we explain what to do if you have lost out because of:

• mis-selling of mortgages
• mis-selling of insurance
• poor investment advice or investment mismanagement.

What the scheme won’t cover you for

You are not covered by the Financial Services Compensation Scheme if:

• the company responsible is still in business – you must complain to them first and then take your case to the Financial Ombudsman Service if you’re not satisfied
• the company was not authorised by the Prudential Regulation Authority or the Financial Conduct Authority – see the next subsection for how to check this
• the company was based overseas – although some European financial services companies are covered
• the investment simply didn’t perform well, unless it was mis-sold or you were given misleading advice about how it would perform.

Check that your adviser is FCA authorised

For you to be covered by the scheme for mis-selling your adviser must have been authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA).

You can easily check this on the online register – you just need to know the name of the firm or adviser.

General insurance mis-selling and the scheme

You can claim compensation from the Financial Services Compensation Scheme if you have been mis-sold a general (as opposed to investment) insurance policy and the company that sold it to you has gone bust.

Mis-selling is where you’re sold a policy that is unsuitable for you.

An insurance company or adviser might be guilty of mis-selling if they:

• sell you payment protection insurance that includes cover for redundancy when you’re out of work, retired or self-employed – this would mean any claim would probably be turned down
• make you buy their own payment protection insurance before they’ll approve a loan – they can insist that you have this insurance but not that you buy it from them. You might not find out that you have been mis-sold insurance until you have to make a claim and then find out that you’re not covered.

You might also be able to make a claim under the scheme if:

• your financial adviser or insurance broker owed you money from a claim that was settled by the insurance company but the adviser or broker didn’t pass the money on to you and they have since gone bust
• you gave your adviser the money for your insurance premium and they went out of business before it was paid over to the insurance company
• you were a victim of fraud – for example if the adviser told you the premiums were higher than they really were and kept the difference.

What’s not covered

Some kinds of insurance are not covered by the scheme.

These include:

• reinsurance
• credit insurance
• marine insurance
• aviation insurance
• transport business insurance
• any general insurance policy that was arranged before 14th of January, 2005.

The Financial Services Compensation Scheme doesn’t cover claims against advisers or brokers based in the Channel Islands or Isle of Man.

How much could you get?

That depends on the kind of insurance your claim is for.

For compulsory insurance like third-party car insurance, you should get back the full amount of the value of the claim.

For other kinds of insurance like house contents cover, the Financial Services Compensation Scheme can pay 90% of the value of the claim.

For example, if you lost £200 then the maximum compensation the scheme could pay would be £180.

There is no limit to what will be paid out but you can only get 90% of any claim.

Mortgage mis-selling and the scheme

If you have been given bad advice about a mortgage and the firm that gave you advice has gone out of business, the Financial Services Compensation Scheme might be able to pay you compensation for any loss you have suffered because of the bad advice.

You might be able to claim if, for example:

• you were advised to ‘self-certify’ your income and got a more expensive mortgage than you needed
• you were sold a mortgage that wasn’t suitable for you at the time because you weren’t advised properly about what was available
• you were sold a mortgage that you would still be paying when you retired and the adviser didn’t check that you’d be able to keep up repayments
• you were advised to switch mortgages but weren’t given an adequate explanation of why you should switch, and the advice to switch resulted in you losing money.

How much could you get?

The scheme can only pay out for financial loss and the maximum you can get depends on when the firm involved went bust and was ‘declared in default’ by the scheme.

• Declared in default on or after 1 January 2010 – the scheme can pay a maximum of £50,000 for your mortgage mis-selling claims against one firm.
• Declared in default before 1 January 2010 – the scheme can pay the first £30,000 and 90% of the next £20,000, up to a maximum of £48,000 of your mortgage mis-selling claims against one firm.

For example, if you lost £30,000 you could get it all back, but if you lost £45,000 you could get only £43,500 back.

Poor investment advice or investment management

You can claim from the Financial Services Compensation Scheme if you have lost money because of poor investment advice about:

• managed funds
• stocks and shares
• personal pension plans
• long-term investments like mortgage endowments.

You would only apply to the scheme if the company that gave you the advice has gone out of business.

Otherwise you should talk to the company itself first.

You aren’t entitled to compensation just because an investment performs badly or you lose money.

Your loss must be because of any of the following:

• Bad or misleading advice
• Negligent management of investments
• Fraud or misrepresentation (for example, where you were told the investment was a particular kind of investment and it was something else and you relied on what you were told when buying the investment)

For example, if you asked for an investment with a very low risk of losing your money and your adviser recommended a high-risk investment, you might have a claim for compensation if you lost money as a result.

But if you deliberately took on a high-risk investment and then lost some of your money, you would not have a claim.

How much could you get?

The scheme will only pay out for financial loss and the maximum you can get depends on when the firm involved went bust and was ‘declared in default’ by the Financial Services Compensation Scheme.

• Declared in default on or after 1 January 2010 – the scheme can pay a maximum of £50,000 for mis-selling claims against one firm.
• Declared in default before 1 January 2010 – the scheme can pay the first £30,000 and 90% of the next £20,000, up to a maximum of £48,000 of a mis-selling claim against one firm.

For example, if you lost £30,000 you would get it all back, but if you lost £45,000 you would get only £43,500 back.

How to make a claim

Before claiming you should:

• Find out if you’re entitled to any money from the liquidators of the company
• Check that the firm or the adviser was authorised by the FCA

You should always see if you can claim your money back from the liquidator first. If that doesn’t work, you can then claim from the Financial Services Compensation Scheme.

You can make a claim online on their website or print off the documents and post them back.

More about the Financial Services Compensation Scheme

This article is provided by the Money Advice Service.