Keith Richards: Premium could pay for FSCS and FSA
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Richards: ’Transparent’
Tenet distribution and development director Keith Richards says the FSA and the Financial Services Compensation Scheme could be funded by a premium charged on investments.
He says a regulatory and compensation scheme premium would work by charging a percentage of the investment or product contribution, akin to insurance premium tax on general insurance products.
He suggests the premium should also be included in adv- iser charges for advice if it does not result in a product sale.
Richards says: “Consumers would pay a relative premium which is transparent and would apply to everyone, irrespective of distribution route. In a transparent and unbundled world, the consumer should understand the true cost of regulation and the FSCS, which would otherwise have to be factored into an adviser’s charging structure.”
He proposes that proceeds of the levy would be collected and allocated by the Government to cover the cost of regulation, a compensation scheme and consumer financial education initiatives.
He says: “How the FSCS is funded is part of the wider issue regarding the overall cost of regulation and the impact it is having on the entire financial services sector.
“Costs seem set to continue increasing but, in a reducing industry, the impact on small firms in particular is becoming untenable.”
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Readers' comments (5)
Richard Arnold | 10 Feb 2011 9:12 am
A good basis to start from. A levy on advice and products clearly identifying the cost of regulation would empower the consumer to evaluate the relative cost and benefit of regulation. An the regulator would be more accountable for outcomes. The FSCS levy on products would also focus the consumer on risk as I assume products would be levy risk graded.
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Mike Stafford | 10 Feb 2011 10:06 am
Any charge collected at the point of sale by the adviser (whether a product levy or an advice levy) must take into account the exposure to risk the adviser carries i.e the term and the amount of potential loss to the client. It must be single premium costed to prevent the liability falling on the remaining firms when the selling firm goes out of business. As the advice carries a lifelong guarantee (no long stop) the client's life expectancy is fundamental to a reasonably accurate premium, and each product /service is likely to be differently rated. Not an easy task, but at least if we start by recognising how and when the risk arises the PII insurers might get their heads together and work out something.
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Anonymous | 10 Feb 2011 10:43 am
Agree, higher capital protection (counterparty) requires a higher premium too, however the provider should collect not advisers, everything is placed on the adviser.
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Julian Stevens | 10 Feb 2011 8:33 pm
And the FSA's response to this suggestion is...........? Postponement of any review, on the grounds that it's too busy with other things. Doesn't want to do it, more like.
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Anonymous | 23 Feb 2011 9:46 am
I agree part of all product's AMC to fund the organisations.
I believe that some pension schemes already operate this system (and have done for a while) for pension compensation?
It appears to work. Makes you wonder why they did not do this to start with.
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