What does the FSCS cover for an advice client? The £85,000 limit on bad advice, the £120,000 deposit limit, and how to explain both

"What happens to my money if you go out of business?" is a fair question and many advisers answer it badly. They say "the FSCS covers you" without saying what it covers, how much, or whose failure triggers it. This guide gives the limits as the Financial Services Compensation Scheme (FSCS) publishes them and shows how a client's own numbers sit against them.

The limits that matter in an advice firm

The FSCS also covers temporary high balances on deposits, up to £1.4 million for six months. Compensation is paid when the failed firm is declared in default, not simply because it made a poor decision.

What each limit protects against

The FSCS pays when a regulated firm cannot pay claims against it. It does not pay for a fall in the market, and it is not a promise that advice was right. Three different failures are easy to blur in a client conversation:

1. The platform, provider or bank fails. Deposits are covered to £120,000. A pension provider's failure is covered at 100% with no upper limit for failures after 1 April 2019.
2. The advice firm fails owing money for bad advice. The FSCS limit is £85,000 per person, per firm.
3. The SIPP operator fails. £85,000.

A client who is told "my pension is fully protected" has heard the first line of the table and assumed it covers the second and third.

Working it against a client's money

The sums that matter are the client's.

Pension. A client has £300,000 in a SIPP. If the claim is for bad advice or SIPP operator failure, the most recovered is £85,000, which is 28.3% of the fund. For a client with £120,000 the same limit covers 70.8%.

Deposits. A client holds £250,000 in cash at one bank. The limit is £120,000, so £130,000 (52%) sits above it. The limit went up by £35,000, or 41.2%, from the £85,000 before 1 December 2025. Two separate banks hold £240,000 within cover, which still leaves £10,000 over the limit, so full cover needs a third institution. Banks that share a banking licence count as one, so the client should check which licence each account sits under before relying on the split.

Joint accounts. The FSCS describes its limits as per eligible person, so a couple can count twice on a joint balance. Take the figures for each person.

What to say, and what not to say

• Name the type of failure before quoting a figure: "If the bank failed, £120,000 per person per bank. If our firm failed owing you money for bad advice, up to £85,000."
• Do not say "fully protected" or "guaranteed".
• Do not suggest the FSCS makes advice risk-free. It does not touch investment losses from market movement.
• Say whether the firm holds professional indemnity cover, and what the client should do first if they have a complaint. The first step is the firm's own complaints procedure.

Where the firm gives these figures in a client agreement or a website page, the adviser or the firm's compliance function should confirm each figure against the FSCS site on the date it is used, because limits change, as the deposit limit did in December 2025.

Where the cost lands on the firm

The FSCS is funded by levies on regulated firms, and an advice firm's share is in its yearly bill. The FCA fees and FSCS levy guide works that through. A file note that records what the client was told about FSCS protection belongs with the rest of the client file, and the suitability file check shows what a reviewer expects to find there.

Where Overlyft fits

Overlyft can set up an AI assistant for advice firms that prepares the client's FSCS summary from the balances in the fact find, with the limit for each product and the amount above it, for the adviser to check and sign off before it reaches the client. It does not give advice, say whether a client should move money or confirm eligibility for compensation.

This is general information and not financial or legal advice. Check the current limits on the FSCS website before using them.