£70M April levy will break some advisers
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FSCS interim levy: £10k demands to be paid in month
The FSCS’s imposition of a £70m interim levy on advisers to be paid by the end of April to cover the failings of Keydata, Pacific Continental and Square Mile could put some firms out of business.
The investment adviser sub-class has 6,500 firms which will pay an average of £10,800 each, although some will pay a lot more and some will pay far less.
The FSCS says advisers will get their bills by the end of March and have 30 days to pay it.
Aifa argues that the FSCS should reverse its decision to levy investment advisers for the failure of structured provider Keydata, which it says should fall on the provider sub-class.
Keydata will cost advisers £43m while the failure of stockbrokers Pacific Continental and Square Mile will cost £27m.
IFAs are also likely to be hit by an additional interim levy of £;20m for claims made in respect of NDF Administration, Defined Returns and Arc Capital and Income. The FSCS says it is consulting with the FSA and administrators to determine which sub-class pays but that it is likely to fall on investment advisers. This would trigger a break in the £100m ceiling for the investment adviser sub-class, with any overflows paid by the fund management sub-class.
Theses levies come on top of the £19m levy that investment advisers will have to pay the FSCS for 2010/2011 and the £13.5m that life and pension advisers will have to pay over the same period.
In contrast, the investment fund management sub-class will only be required to pay £3.5m, plus any overflows from the investment adviser sub-class.
FSCS chief executive Loretta Minghella has warned that more failures in the investment arena are likely to trigger further costs.
She says: “In addition to these firms, we are continuing to see more failures in the investment area and these are likely to have a further impact on our funding requirements later in the year.”
Late last year, Aifa said it was taking legal advice over the FSCS’s decision to place the Keydata costs on advisers rather than providers.
Aifa policy director Andrew Strange says: “Aifa has already met with the FSCS to discuss the true nature of those classed as providers such as Keydata. We will continue to argue that these costs should be borne by the provider sub-class.”
The Investment Quorum chief executive Lee Robertson says: “It is unfair that we are paying for the transgressions of poor firms. Unless there is some kind of staged payment option, it may put some out of business.”
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Readers' comments (10)
Anonymous | 18 Feb 2010 9:36 am
perhaps a judicial review should be sought as this seems grossly unfair?With Barclays announcing a 92% profit and being one of the biggest counterparty risk issuers along with Merryls and BNP etc why cant they take the hit on this area of the market which allot of us havent even touched? it seems so unjust.
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Andy Seager | 18 Feb 2010 10:05 am
It seems to me that many small IFA's will not be able to afford this. The whole issue then becomes a self perpetuating.
The problems like this will be exacerbated in the future as more advisers leave the industry, meaning a lower number of firms in the IFA market to pass on such levies to. Those firms that leave the market add to the regulatory burden of those that remain. As the compensation culture increases and as there will be less firms left, the levies will only become higher.
How are IFA’s supposed to operate in an environment whereby there is the constant worry about rising costs, increased possibility of fines, and increased levels intrusive interrogation by the authorities and also increased pressure to take further qualifications. The pressure is relentless!
The authorities need to return to the time when they were respected. Trouble is how do you respect anyone that abuses you every week for years.
Notwithstanding that I have spent most of my adult life in the industry, I am seriously contemplating leaving to do something else. God knows what, but something whereby I can focus on doing business without the constant worry.
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Evan Owen | 18 Feb 2010 10:35 am
Is this what Parliament intended? Who is responsible for designing this ridiculous compensation machine?
Mike Fenwick predicted this more than two decades ago, nobody listened.
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Anonymous | 18 Feb 2010 11:59 am
This ridiculous scenario is possibly the most dangerous idiocy to come from the regulating plutocracy.
No reasonable person would examine the facts and not call a spade a spade. Keydata, Arc, NDF Admin and Arch Cru were product manufacturers and NOT intermediaries. The question of FSCS liability should fall to the correct industry sector - the fund management group.
This is a regulatory failure, very similar to split-cap investment trusts. It falls to the regulator to clearly draw a line between Independent Financial Advisors, who for the most part have protected their clients from toxic products and providers, and the shark pool in which the bigger problems lurk.
It should also be said that the indecent haste with which this measure is being rushed in helps nobody.
Is it too cynical to believe that Canary Towers wants to feather its nest before a likely June election?
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Anonymous | 18 Feb 2010 2:15 pm
Sorry, this is wrong. We did not recommend any of these products, we advised against them.
The FSA needs to understand we cannot go to the Government and ask for more money. The cost of RDR, the credit crunch is putting very good advisers out of business. We do not have bottomless supplies of money.
They will want to restrict earnings next as all this cost has to be passed to the client. SO HOW IS THAT TCF.
Hit those at fault.
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Sean | 18 Feb 2010 3:51 pm
Does any other Business have to pay a levy to the Government to cover businesses not under their control going bust? Do car salesmen have to pay a levy to cover help bail out the car manufacturing industry - if not why do we is the question?
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Martyn Collins | 18 Feb 2010 3:56 pm
Andy Seager
Leave...I did and its great!
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Anonymous | 18 Feb 2010 4:09 pm
Andy Seager
I feel exactly the way you do, the constant pressure is indeed relentless & I for one cannot take much more of the worry this causes. Unless someone with more clout than the FSA can see what they are doing to us and call a halt somewhere along the line, we are doomed.I think it may be wise to take Martyns advice.
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Anonymous | 19 Feb 2010 10:13 am
Has anyone considered the legal position in terms of suing the FSA for not doing ITS job properly, given that their failure (clearly provable i would have thought?) is now causing us to incur a loss?
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Anonymous | 22 Feb 2010 6:53 pm
As when stakeholder was introduced, if all providers universally refused to co-operate the product would never have got off the ground. Similarly, if all IFA's refused point blank to pay this levy what are they going to do, close down the whole industry - maybe this would get them to take notice that we have had enough of injustice.
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