It’s been a bad week for some adviser firms with no fewer than seven being declared as failed or under investigation by the Financial Services Compensation Scheme.

Seven is a pretty high number for one week and suggests that we are seeing a string of firms leaving their liabilities to the FSCS and, indirectly, to other regulated firms.

Many of the cases relate to pension transfer and investment advice, frequently but not always BSPS cases, with some firms seeing a dozen claims or more. It’s not a good picture.

It’s been interesting for our journalists to look into the background to the cases. Many of the firms closed as companies several years ago, either dissolving or going into liquidation.

The cost of the claims will likely run into hundreds of thousands of pounds and potentially millions if legal costs are factored in.

A common perception is that these were small, one man bands. Not so, at least not always. Some had 20 or 30 regulated staff and were substantial businesses.

Of course it’s not always possible to be certain why the firms failed, in some cases, years after they closed. It’s likely, however, that some of the cases involve claims management companies encouraging former clients to claim and seek compensation.

I’m no fan of the CMCs but the clients, if they have been badly advised, have a right to make a complaint.

It must, however, be very difficult to investigate claims relating to companies which went into liquidation many years ago. I do not envy the FSCS investigators having to dig through the bones.

What is more concerning for the advice procession is this long and growing list of failed firms and what it tells us about the advice sector.

I am going to stick out my neck here and say that not all the firms were bad firms. Many were successfully run for many years. In some cases the advice may have been decent in general but some clients may have received poor advice and one upheld claim can be enough to declare a firm as failed.

In other words, the failures do not necessarily point to a systemic failure of the advice sector although they do highlight a worrying trend of firms failing and leaving liabilities for others to sort out.

Ultimately this is not a good place to be. We know the FSCS and FCA are working on way to mitigate the cost of the claims and firm failures but it would be sensible to look at the protections in place surrounding bad advice claims. Advice firms should, at the outset, have much more explicit insurance or capital set aside to cover any future claims. Their own safety net, if you like.

All businesses must protect themselves from future problems but it’s clear from the growing number of claims that something went badly wrong several years ago, particularly when it came to lucrative pension transfer cases. The damage has been done but the FCA must be much more pre-emptive in future to prevent failed firms dragging down the whole sector.

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Kevin O’Donnell is editor of Financial Planning Today and a journalist with 40 years of experience in finance, business and mainstream news. This topical comment on the Financial Planning news appears most weeks, usually on Fridays but occasionally other days.  Email: This email address is being protected from spambots. You need JavaScript enabled to view it. Follow @FPT_Kevin >Top Tip: Follow Financial Planning Today on Twitter / X @_FPToday for breaking news and key updates