The true cost of bad advice, and more importantly what it’s going to cost, moved into the spotlight this week with the FCA’s headline-making proposals to compel most financial advice firms, some 5,000, to set aside reserves for the cost of bad advice.

The idea is that firms assess past cases where bad advice claims are a potential risk and then set money aside in the event of a successful claims by an aggrieved client.

This is a new direction in cost sharing for the industry and has raised a few eyebrows.

Naturally some financial advice and Financial Planning firms are a bit worried.

Firms could have to set aside large sums for potential claims, with the regulator advising that this could come from profits. Will firms have to forego dividends to put money into their ‘rainy day / bad advice’ pot? We’ll see.

Certainly there is a need for the cost of bad advice to fall first and foremost on the providers of the advice.

Many Financial Planners we’ve spoken to have welcomed it as a sensible move to, as the FCA says, make the ‘polluter’ pay - that is push the compensation cost burden on to the firms that cause the most problems.

There is merit in this. The FCA figures published alongside its proposals reveal that the Financial Services Compensation Scheme paid out nearly £760m in compensation between 2016 and 2022 for poor advice provided by failed personal investment (investment adviser) firms.

Some 95% of this huge bill was generated by just 75 firms, the FCA said, a horrendous testament to the damage some advice firms can cause.

The FCA is also looking to the future. There are signs recently that many firms that have provided costly bad advice have simply gone bust to avoid their liabilities, dumping claims on the FSCS.

In many cases the FCA has been unable to fine these firms, even if it wanted to, because the companies' coffers were empty.

All of this makes a lot of sense but does not stop the incompetent, the greedy and the downright useless adviser from setting up a financial advice firm tomorrow, providing terrible advice and then running away.

Surely the answer is to raise the benchmark for entering the financial advice profession much higher. Keep out the clowns and criminals and compensation claims should fall.

In the meantime, the cost of keeping the industry clean is about to go up.

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Kevin O'Donnell is editor of Financial Planning Today and has worked as a journalist and editor for over three decades.