How Am I Protected if Something Goes Wrong with My FCA Regulated Financial Adviser?
FCA Regulated Financial Advice: What Protections Do You Have if Things Go Wrong?
Seeking advice from a financial professional is a significant step towards achieving your financial goals. In the UK, genuine financial advisers must be authorised and regulated by the Financial Conduct Authority (FCA). This isn't just a badge; it comes with a strict set of rules designed to protect you, the consumer. But what happens if the advice you receive turns out to be unsuitable, or the firm you deal with fails?
Understanding the safety nets in place is vital for peace of mind. At Plouta, we believe that informed consumers make better financial decisions. This guide will explain exactly what FCA regulation means, the protections you have if advice goes wrong, how compensation schemes work, and the crucial difference between advice protection and investment protection.
What You’ll Learn in This Guide:
What FCA Regulation Means: The duties your adviser owes you.
The First Step: Complaining to the Firm: How the formal complaints process works.
Escalating Your Complaint: The Financial Ombudsman Service (FOS): Your free and impartial referee.
The Ultimate Safety Net: The Financial Services Compensation Scheme (FSCS): Protection if a firm fails.
Crucial Distinction: Protection for bad advice vs. protection for investment failure.
Benefits & Peace of Mind: Why using a regulated adviser is the safer choice.
What Does "FCA Regulated" Actually Mean for You?
When a financial adviser or firm is authorised and regulated by the FCA, they must adhere to stringent rules designed to protect consumers:
Duty of Care: They must act honestly, fairly, and professionally in your best interests.
Suitability: Any advice they give must be suitable for your individual circumstances, financial goals, and attitude to risk. They must gather detailed information about you (a "fact-find") to ensure this.
Clear Communication: They must explain their recommendations clearly, including all costs, risks, and potential downsides, in a way that is not misleading.
Know Your Client (KYC) & Anti-Money Laundering (AML): They must verify your identity and comply with regulations to prevent financial crime.
Complaints Handling: They must have a formal internal complaints procedure that you can use if you are unhappy with their service or advice.
These rules provide the first layer of protection – ensuring advice should be suitable from the outset.
What If the Advice Goes Wrong?
Step 1: Complain to the Firm
If you believe the advice you received was unsuitable (e.g., you were recommended a high-risk investment you weren't comfortable with, or a product wasn't explained properly) and you have suffered a financial loss as a result, your first step is to complain directly to the advisory firm.
How: Write a formal letter or email clearly outlining your complaint: what advice you were given, why you believe it was unsuitable, what loss you have suffered, and what you want the firm to do to put things right. Keep copies of all correspondence.
Timescale: The firm has eight weeks to investigate and provide you with a final written response.
Many complaints are resolved satisfactorily at this stage. The firm might offer an apology, corrective action, or financial compensation.
Step 2: Escalate to the Financial Ombudsman Service (FOS)
If you are unhappy with the firm's final response, or if they fail to respond within eight weeks, you can take your complaint to the Financial Ombudsman Service (FOS) for free.
What it is: The FOS is an independent body set up to resolve disputes between consumers and financial businesses. Their decisions are binding on the firm (up to a certain limit).
How it works: You submit your complaint details and evidence to the FOS. They will investigate impartially, looking at both sides of the story and considering whether the firm acted fairly and reasonably, and whether the advice was suitable according to FCA rules at the time it was given.
Timescale: Investigations can take several months, depending on complexity.
Compensation: If the FOS upholds your complaint, they can order the firm to pay you compensation to cover the financial loss you suffered due to the unsuitable advice. There is a maximum award limit the FOS can order, which is currently £430,000 (for complaints referred after 1 April 2024 concerning actions from 1 April 2019). For older cases, lower limits may apply.
Step 3: The Ultimate Safety Net – The Financial Services Compensation Scheme (FSCS)
What happens if the advisory firm that gave you bad advice has gone out of business (failed) and cannot pay the compensation awarded by the FOS or a court? This is where the Financial Services Compensation Scheme (FSCS) steps in.
What it is: The FSCS is the UK's statutory compensation fund of last resort for customers of authorised financial services firms. It's funded by levies on the financial services industry.
Protection for Bad Advice: If an FCA-authorised firm gave you unsuitable advice regarding investments or long-term insurance (like pensions) and has since failed, the FSCS can pay compensation for your financial loss.
Compensation Limit: The maximum compensation for claims relating to bad investment advice (including pensions advice) is £85,000 per person, per firm.
How it works: You would need to submit a claim directly to the FSCS. They will investigate whether the firm failed, whether the advice was unsuitable, and calculate your loss.
It is crucial to understand that the FSCS £85,000 limit for bad advice is separate from its protection limits for deposits or investments held by a failed firm.
Bad Advice vs. Investment Failure: A Critical Distinction
This often causes confusion. The FOS and FSCS protection described above relate primarily to the suitability of the advice you received, not the performance of the underlying investment itself (unless the investment product was misrepresented).
Bad Advice: You were recommended an investment that was clearly too risky for you, wasn't explained properly, or didn't meet your stated goals, and you lost money as a direct result of that unsuitable recommendation. You may have recourse via FOS/FSCS.
Investment Failure/Poor Performance: You received suitable advice for a regulated investment product, understood the risks, but the investment simply performed badly due to market conditions or the failure of the underlying asset. There is generally no compensation for poor investment performance. Investing always carries risk, and the FSCS does not cover investment losses just because the market went down.
FSCS Protection for Investments: The FSCS does provide separate protection if the investment firm holding your assets (e.g., your platform provider or fund manager) fails. The limit for this type of claim is also £85,000 per person, per firm. This protects your assets if the firm collapses, but not if the value of your investments falls due to market movements.
Benefits of Using an FCA Regulated Adviser: Why Protection Matters
Choosing an FCA-regulated adviser provides significant benefits beyond just their expertise:
Professional Standards: They are held to high standards of knowledge, conduct, and ethics.
Suitability Guarantee: They have a regulatory obligation to recommend products that are right for you.
Clear Information: They must explain costs and risks transparently.
Recourse: You have access to a clear complaints process and the independent FOS.
Safety Net: The FSCS provides crucial protection if the regulated firm fails.
Using an unregulated individual or firm offers NONE of these protections. If you deal with an unauthorised adviser or invest in an unregulated product based on their recommendation, you will have no access to the FOS or FSCS if things go wrong.
How to Check if Your Adviser is Regulated
Always check the FCA Financial Services Register before dealing with any adviser or firm.
Website:
register.fca.org.ukWhat to check: Search for the adviser's name and the firm's name. Ensure their status is "Authorised," check their contact details match what you've been given, and verify they are permitted to provide the type of advice you need (e.g., "Investment Advice," "Pension Advice").
Conclusion: Advice You Can Trust
Choosing an FCA-regulated financial adviser provides you with invaluable expertise and a robust safety net. While the primary aim is always to receive suitable advice that helps you achieve your goals, knowing that you have recourse through the FOS and protection from the FSCS if things go seriously wrong offers essential peace of mind. This regulatory framework is designed to ensure you can seek financial advice with confidence, knowing your interests are protected.
Frequently Asked Questions (FAQs) About Financial Adviser Protection
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Using an FCA-regulated adviser significantly increases your safety. They must follow strict rules to protect your interests. Furthermore:
Complaints: You have access to the free Financial Ombudsman Service (FOS) if you believe the advice was unsuitable.
Compensation: If a regulated firm fails and owes you compensation (due to bad advice or mismanagement), the Financial Services Compensation Scheme (FSCS) can step in up to certain limits (currently £85,000 for bad investment/pension advice). However, remember that investment values themselves can still go down due to market movements – this is investment risk, not bad advice, and is not typically covered.
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If you receive advice that was unsuitable for your circumstances (e.g., too high risk, not explained properly) and you lose money as a result, you should first complain directly to the advisory firm. They have eight weeks to respond. If you are unhappy with their response, you can then take your case to the Financial Ombudsman Service (FOS) for free. The FOS can order the firm to pay compensation if they find the advice was unsuitable.
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From the firm directly or via FOS: The FOS can order firms to pay compensation to cover the financial loss you suffered. The maximum award the FOS can order is currently £430,000 (for complaints referred after 1 April 2024 about actions from 1 April 2019 onwards).
From the FSCS: If the firm that gave the bad advice has failed (gone out of business), the FSCS can pay compensation. For claims related to bad investment or pension advice, the maximum compensation is £85,000 per person, per firm.
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No, they are separate protections with the same limit but covering different risks:
FSCS Protection for Bad Advice: Covers losses caused by unsuitable investment or pension advice from an authorised firm that has now failed (limit £85,000).
FSCS Protection for Investments: Covers losses if an authorised firm holding your investments (like a platform or fund manager) fails and there's a shortfall in client assets (limit £85,000). This does not cover losses simply because your investments went down in value.
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First, make a formal written complaint to the advisory firm itself. Outline clearly what the issue is, why you think the advice was unsuitable, and what you want them to do. Give them up to eight weeks to provide a final response. If you are not satisfied, or they don't respond, you can then escalate your complaint to the Financial Ombudsman Service (FOS).
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This is essential. Always check the FCA Financial Services Register before dealing with any adviser or firm. You can find it on the FCA's website (register.fca.org.uk). Search for the adviser's name and the firm's name. Ensure their status is "Authorised" and check their contact details match what you've been given. Also, verify they have permission to provide the specific type of advice you need.
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Disclaimer: This guide provides general information about the UK's financial services regulatory and compensation frameworks as of October 2025. It is for informational and educational purposes only and does not constitute financial advice. Compensation limits and rules can change. Always check the official websites of the FCA, FOS, and FSCS for the most up-to-date information. Your eligibility for compensation depends on the specific circumstances of your case.