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Advice firms say providers should cough up for FSCS costs

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More than three quarters of advisers believe providers should contribute to the Financial Services Compensation Scheme intermediary funding class, according to Apfa research.

A July survey of 262 advisers found that, on average, respondents thought the provider contribution should represent around a third of the cost.

More than two thirds of respondents said a risk-based levy should be based on the volume of risky products sold by a firm while 59 per cent considered it should be based on the number of successful Financial Ombudsman Service complaints made against it.

Apfa director general Chris Hannant says the survey shows strong feeling among advisers for providers to pay their share.

He says: “The coming rules on product governance place a clear responsibility on such firms which should be reflected in a contribution to the FSCS fund.”

In a note to members this month, the Association of British Insurers warned its life and pensions members they could soon face FSCS levies if the FCA goes ahead with plans for providers to contribute for adviser failures.

Hannant adds: “The FSCS levy system needs fundamental change. Compensating people who have received a bad service, been missold a product or conned should be the last resort.

“Prevention is better than cure and so it is important that the FCA focus on stopping the losses in the first place.

“More needs to be done to keep retail clients away from unregulated products and tightening the current regulatory framework will reduce the likelihood of scams and sale of inappropriate investments.”

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Of course providers should contribute !!

    This is the best way to implement a “Product Levy” the providers just increase fund costs, to cover it

    On saying this it still does not get around the fact, the good will always be penalised to fund the bad !

    That is fundamentally WRONG ! and yet the FCA will not do anything about it, and the more the consumer knows why advice and investing is expensive the better, we might even get to a situation where MP’s are crying about “rip off” FCA, FSCS, and FOS instead of pensions and the like

    What was Dennis Hall saying the other day “whats in it for the consumer” ? yes MR FCA WHAT is in it for the consumer ?

  2. Trevor Harrington 16th August 2016 at 12:02 pm

    So …. more than 75% of Advisers say that the Product Providers should pay their FSCS levies.
    The Advisers do the business, and recommend the products …. but the Providers should pay the compensation.
    Would somebody mind explaining to us all, the logic behind this?

    The advisers doing the bad deeds should pay ….
    The bad guys should obviously pay for the bad Guys ….
    Not a problem …
    Just link the annual FSCS levy to the advisers in a pro rata amount according to how many complaints they have received in the preceding year …

    I have been advocating this for many years ….
    and as far as I am aware nobody has come up with a reason why this is not already being done.

    • Morning Trevor

      I don’t think all 75% of advisers want providers to pay our levies (I certainly don’t), however I do think they should pay their fair share or a proportion at the very least !

      As with linking this to the complaints register has its flaws, take me…. I have not had 1 complaint in my 26 years as an adviser, does this mean I have not advised on crap along the way ? does this mean I will not advise on crap in the future ? does this mean I am lying on my RMAR ? (i haven’t and don’t by the way) what about the opportunist who will lie,cheat, and get as much as they can until they get caught, and you have to say with the FCA this could be many years in the making !

      I have said before, ditch the need for outside PI and just pay into the FSCS ! why the hell do we need to pay both ?

      This way every-one pays, and every client will (on a upheld FOS decision) get their money back,

      No need for excess, no need for stupid Cap Ad, No need for small print, No need for exclusions, no more stupid form filling and panic thinking you have not filled it in correctly, and you and me as advisers are 100% confident it will pay out should you make a mistake on a upheld complaint ! also are we all, and is the FCA confident every registered adviser or company has PI ?

      One very simple exercise, Based on the Gabriel report this is your FSCS premium ! payable upfront or monthly !!

      JOB DONE !!

      I am not saying this maybe be cheaper, but I think it will be in the longer term ?

      We all know the first rule of any PI provider is not to pay out on a claim !!! and is any adviser confident their PI would pay out on a claim ? I know I am not !

      We as advisers have so many of other peoples hands in our pockets there is no room for ours !

      At the moment the few are paying twice, for the others mistakes or folly, as every bloody thing in this industry is retrospective, I am always the sweeper upper after a party never the first in the door !

      I am a firm believer in the FSCS scheme, but how its managed at present is just not fair as it rewards the bad and punishes the good !

  3. I think this is fair given that overwhelming majority of claims that fall on FSCS are product related (directly or indirectly). If the providers end up having to foot the bill, maybe, just maybe they will think twice before bring crap (or fraud) to market and trying to con advisers into using them.

  4. I have always thought that the Product Providers should pay for part of the levy as they have a responsibility/duty to the consumer for manufacturing suitable products.

  5. Quis custodiet ipsos custodes? 16th August 2016 at 4:51 pm

    I am old enough to recall when the FSA 1986 came into being. The then regulators (SIB, FIMBRA, LAUTRO et al) said the reason we need much stricter, intrusive regulation (and so regulatory bodies) was to limit claims on the then various statutory compensation schemes, which have now been subsumed into the FSCS. As far as I am aware this principle has never been revoked by the PIA, SIB, FSA and now the FCA (nor should it!) – so really we should measure the quality of regulation by the number of FSCS claims. After all, if the regulators had been doing their jobs properly then the “bad guys” would have been weeded out, only suitable products by now (after almost 30 years of regulation) would only be arranged and so the FSCS claims would be at the minimum. The fact that they are not is the strongest indictment of ineffective regulation we have had in tensest 28 years. Ultimately the FCA et al should be measured on how well they protect the statutory compensation fund. Clearly they are failing in this duty and so consumers pay for their shortcomings twice – once in the form of higher fees to us in the form of (ever increasing) regulatory funds and twice in the form of ever increasing levies. For me I have no compunction in passing all these fee increases on to clients giving them the above explanation for the reasons.

    I used to believe in FS regulation, but after almost 30 years no more! The link between effective regulation, in the consumer good and regulatory activity has long since broken. This is understandable really as if you give anyone a job that involves the spending of someone else’s money (which those “someones” have no choice but to pay) they will create ever inventive ways to ensure that they stay in that job – the regulator’s activity is just another form of “rent extraction” with no public good. They are no different to the banks they failed to effectively regulate in the period up to 2008/9.

  6. IMO, the complaint is down to poor advice.

    Those who gave that poor advice should pay.

    The responsibility lies with IFA’s.

    Basing the insurance cost( which effectively is what it is) only past complaints makes sense.

  7. Typo on previous post.

    ‘only’ should be ‘on’.

  8. UCIS is always the FSCS issue – Advisers are the ones selling UCIS – Normal providers do not manufacture UCIS – When the FSCS starts upholding complaints about regulated managed funds then providers should start paying.

  9. I agree with Quis custodiet in that I think the regulation we have no longer protects consumers in the way it should. It seems to me that our regulators still work on two underlying principles/views: 1) consumers are not expected to take any meaningful responsibility for their purchases and 2) when claims are made advisers have to prove themselves innocent rather than being presumed innocent. This goes against two of the English legal system’s key principles 1) ignorance is no defence in the eyes of the law and 2) the accused is innocent until proven guilty. This is just wrong. Regulations seem to be framed around these two misguided views. It really does not matter who works for the Regulator since the culture of consumers being allowed to be ignorant and advisers being entirely responsible for all ills prevents rational regulation being framed and implemented. So what happens is that the advice process becomes slanted towards being compliant with regulations rather than being developed to make it more useful and valuable for the consumer. This is not just in the field of regulated financial advice. PPI is undoubtedly a scandalous mass mis-selling exercise. However, I have seen customers claim for mis-selling compensation AND WIN when their PPI policy actually paid out to them! What on earth is happening to our country when consumers can be compensated for something which left them better off and was not mis-sold? And I have seen claims management companies write lots of letters to clients of mine to get them to claim for being missold investments related to mortgages. And on each and every occasion the claims were not made or else made and not found in favour of the client. Because they were not missold. Our regulation effectively gives consumers two bites of the cherry. One is they get to ride the risk train of their choice/recommendation and potentially end up much better off. Two is that the risk train falls off the rails and they can then get a big pay off to get back where they started and avoid the metaphorical fare. Our advice will never be right with hindsight since there are always better times to invest and there will always be financial crises and economic cycles which mean investments fall as well as go up. So good advice is not always something which leads to the best outcomes. Luck and unknown future returns play a huge part too. There needs to be a clear understanding that clients who invest in risk based products can lose as well as win. And there needs to be a clear understanding from clients that they should only invest in products where they are aware that their objectives may not be achieved because future returns may be less than they anticipated or expected. The work the regulator has done on amending regulated product charges has been really good, but sadly there are now a plethora of unregulated products and unregulated “advisers”. For these products and these advisers surely the law is there to deal with misrepresentation and fraudulent sales? I do not believe the collective of advisers should pay for compensation schemes and know of few if any other compensation schemes where this happens. Do computer salespeople chip in to pay for missold computers and networks? Do car salespeople have a whipround to pay for a missold Ford Fiesta? Do estate agents have to fund the fall in a house price if there is a notice of blight two years later that was not previously foreseen? There are few other industries where the adviser is responsible for impossible to foresee economic downturns. The price of overly protective regulation is that all consumers end up paying much higher advice fees because we have to spend so much more time, effort and resources on proving what we have said to the consumer.

  10. If the advice is bad and the business goes bust, this is one matter. If the product or the company promoting it is flawed or mis-managed, then this is another.

    Throw into the mix the fact that you will not get a levy from unregulated providers of products (the biggest issue!) and the whole thing becomes a bit cat and mouse.

    Therefore, the simple solution is indeed a government product levy/tax/ipt, it has to be (then it can encompass unregulated financial products as well.. they do it with general insurance products!) Buy it if you want, promote it if you want, but notice the cost and ask why!

    If the public rely on advice to the ‘supposed’ ignorance of understanding anything about what they are purchasing, then the easy way to stop this is to make the product very expensive (they will get that!), because as a sector, we clearly cannot seem to eradicate rogue firms (who have FCA regulation) from marketing poor and unregulated products, try as we might there are still too many sharp practitioners out there, which is kind of what I thought the FCA looked after.

  11. This is an idea that’ll never fly. The FSCS is a fund of last resort for consumers who’ve lost money as a result of bad advice. Irrespective of whether their products are good, bad or indifferent (which is for advisers to judge), providers play no part in the advice and determination of suitability process. The reaction to this proposal from regulated providers of regulated products is likely to be: Why should we (contribute to the FSCS)?

    The prime drivers of skyrocketing FSCS levies appear to be failed unregulated investment schemes. And, as pointed out already, unregulated providers of unregulated investment schemes can’t be made to pay any levies anyway. The only way forward (IMHO) is for the FCA to impose stringent special permissions requirements on any firm wishing to advise on (sell) high risk unregulated products, notably enhanced DD processes, adequate PII cover and enhanced CapAd. It should have done it years ago.

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