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Adviser calls on politicians to help fight the £70m levy

AGB Financial Services IFA Andrew Barnes is calling on the Government to intervene with regards to the Financial Services Compensation Scheme’s £70m interim levy. 

In the letter to Chancellor Alistair Darling, City minister Lord Myners and Treasury chief financial secretary Liam Byrne, Barnes warns that many small firms will struggle to pay their share of the levy by the proposed 30 day deadline. A similar letter has been sent to Conservative front-bench MPs.

Last week, the FSCS announced that investment advisers will receive notice of their share of a £70m FSCS interim levy by the end of March and it will need to be paid in full within 30 days.

The levy covers the failings of structured product provider Keydata and stockbrokers Pacific Continental and Square Mile.  Keydata will cost advisers £43m, while Pacific Continental and Square Mile will cost £27m.

Barnes expresses outrage that small investment firms are footing the bill for the failings of Keydata and says the FSA’s retrospective regulation is leaving advisers to pick up the financial tab.

He says: “Why are we, small investment firms picked out to fund all this?  Keydata was a “product provider” heavily into the structured product market which I am pleased to say we have never exposed our clients to – how diligent were the FSA in seeing a problem coming?

“I don’t know what you can do between you, but as senior members of Government  and as MPs surely something has to be attempted.”  

The letter is printed in full below:

Dear Mr Darling, Lord Myners and Mr Byrne,
 
I write to you as those ultimately responsible for the Financial Regulatory structure of the FSA and FSCS.  I had wished to include Gordon Brown but it is noted that the ability to email him has been withdrawn (something to do with a security issue?).
 
I write particularly with regard to the news that we as small firms are about to be hit with a huge supplementary call from the FSCS of an average of £10,800 per firm. Until recently my business was only me, but as I TRY to move slightly in the direction of retirement I have a colleague who is also an adviser.  Whether it will EVER be possible to retire is of course a very thorny question due to the determination of the FSA / FOS in making us responsible for advice given well beyond the statutory time bar period of 15 years, and that in itself longer than many professional are exposed to.  This is not aided by having been a sole trader for 20 + years which means that until I die, I face the prospect of getting a bill for advice given 20 years or more ago, probably using the wonderful wisdom of hindsight rule reputed to the norm for the FOS.
 
Putting this supplementary call into context:
 
1.      For a firm our size we actually only have to prove to the FSA that we have capital adequacy of £10,000 – so this call even breaches that level

2.      We pay something like £4,500 p.a. to the FSA including the basic FSCS levy

3.      We pay another £4,000 p.a. or more in PI premiums, and face very sizable excess in the event of a complaint against us – currently down to a mere whiff i.e. £5,000, but a few years ago £10,000 or more

 
Many small firms need to pay even their FSA fees on monthly direct debit (we don’t).  So how on earth are they going to deal with a £10,800 bill, to be delivered in March with a demand for payment within 30 days??

It is reckoned this will push more firms out of business, so then the number of firms left to pay into the bottomless pit gets smaller, and we face ever growing and hugely disproportionate bills.  There are major expectations that the numbers of IFAs will shrink massively after implementation of RDR at the end of 2012.  We worry as to how many firms might be tempted to “sell” over zealously before commission is banned, proposing to then shut their Ltd Cos at the end of 2012, and “dump” their liabilities on the FSCS, adding further to the huge burden on those left.  We worry that the FSA stands idly by, and will maybe do a “retrospective” review of such practices – doing their usual of regulating with the “tail of the dog” rather than the head – and in so doing leaving us to pick up the financial tab, for their lack of “up front” regulation.
 
This brings me to why we are being hit with this massive bill from the FSCS.  We are told that some £43m of the £70m (and remember this is just THIS supplementary call) is due to the failings of KeyData and  £27m in respect of stockbrokers Pacific Continental and Square Mile.
 
1.      Why are we, small investment firms picked out to fund all this?  KeyData were a “product provider” heavily into the structured product market which I am pleased to say we have never exposed our clients to – how diligent were the FSA in seeing a problem coming?

2.      With regard to the stockbrokers, how can the FSA stand by and allow firms of this magnitude to get into such a mess – I thought the FSA’s job was to monitor the risk to investors of all firms and regulate accordingly

 
One could maybe ask if it doesn’t really matter to the FSA – with their massive pay packages, bonuses, pension schemes – maybe if a part of THEIR pay (and a material percentage just like we are being made to suffer) was deducted for regulatory failings they might regulate a bit more from the front.
 
I don’t know what you can do between you, but as senior members of Government  as MPs surely something has to be attempted.
 
As it is, the progress of the railroaded RDR is quite clearly going to remove many of our clients from access to independent advice as we are forced to remove any evidence of larger investors helping in any way to pay for the small ones, and in working on fees alone raise the bar of hourly rates to a level which will preclude many needy investors benefitting from our services.  It appears the only place many people will go, including the vulnerable and elderly, will be their local building society / bank branch, who will be only too delighted to “flog” them  “this months” offer.  We currently take on many clients (all of whom come by personal or professional recommendation) who come to us having had absolutely shocking treatment at the hands of banks / building societies – is it the will of Government to in future allow such people to be used as soft targets for the bank selling tactics?  These are not empty words – I can put you in touch with clients who were so affected, and they will tell you how hard we had to fight on their behalf for them to be rid of the inappropriate rubbish they had been sold.  We won on each occasion, often at no cost to the client as we are driven FIRST by principles – whether post RDR we can afford to help such people remains to be seen.
 
I would be happy to meet with you.  I would be willing to bring other IFAs to such a meeting, hoping that you precipitate action before it is all too late.
 
I hope to hear from you very soon.
 
Yours sincerely,
 
 
 
Andrew G. Barnes

 

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Comments

There are 16 comments at the moment, we would love to hear your opinion too.

  1. Everybody should follow Andrew’s example and also write to and ask for an appointment with their own MP. The bigger the noise we make about this the better.

  2. I wish you luck Andrew personally I think there is a far bigger picture and issue that needs to be dealt with and that is the FSA.

    We pay the FSA (not out of choice either) to protect the consumer (or that is what they want us to believe) yet they fail time and time again and now in as big a way as you could possibly imagine. When they fail each time we still get to pick up the bill but they accept no responsibility or indeed pay any compensation for their failures.

    They cannot lose as they are judge, jury and sentencing authority and so can do and say what they like as indeed they are still doing, yet we pick up the bill each time.

    Personally I think it is time a massive “class action” was taken against the FSA by all IFA’s and others in the industry.
    How can you have a situation when we (the industry) pay the FSA to do a job and protect the consumer but they fail and fail and fail and only seem to do their job based on “hindsight”. What is the point of paying the regulator at all if we still end up paying the costs of their mistakes and others anyway ?

    Anyone can regulate with “hindsight” and having cost us all many £ Billions since they were formed it is just a ridiculous situation and what has it achieved and guess who ultimately pays the consumer ?

    Time to pack up our bags whilst we still have something left to pack up before they demand everything we have or fight them in the trenches and get justice !!

  3. I absolutely agree with the above comments and I am seriously thinking about closing the doors and becoming unemployed that will be the only way to get paid

  4. Anonymous 1:10
    Sorry mate but if you have been self employed you are not eligible for any benefits – even though you have been paying NI contributions – another breach of rights.
    Even if every IFA in the land shut up shop it would not help. The FSA still have the power to pursue you to the grave for any outstanding fees.
    It really is time for us to band together and take a class action against the fsa otherwise this type of thing, having been successful first time, will happen again and again.

  5. So much for ‘Treating Customers Fairly’ Clearly those of us who take great care to provide a thorough and ethical service to our clients cannot expect the same. You pay a regulator, you undertake careful research, you avoid selling these schemes and then you pick up the bill – are given minimum time to pay it under threat of further sanctions – TCF !!

  6. Contact Gareth Fatchett at regulatorylegal.co.uk. You may have had an email from him with regard to this matter and fighting our corner.
    I don’t know how this will all pan out but I agree that we really do have to stand up for ourselves.

  7. What is AIFA doing about it – they are supposed to be a voice for the IFA? What are network chairmen and ceo’s doing about it? If we, the IFA go, then so does their revenue. We have bodies we pay fees to, why are they not up front charging at the FSA and the FSCS on our behalf. Does their silence mean we have no hope. Stop sitting on the fence, if you value us and the service we provide to the public, then you have a duty to protect the consumer from bankassurers,who are hovering like vultures, and us the IFA community.

  8. AIFA are strangely silent

  9. Clearly we all feel aggrieved at having to pay for the failure of large organisations of which we have no control and this may be agaiinst the European Court of Justice. Conversely the industry needs to take responsibility for actions that could not be easily anticipated by the regulator. Therefore, when breaches have occurred that should have been detected by the FSA the costs should be the responsibility of the FSA and therefore the Government. When a breach occurs that is hidden from expected FSA regulation our compensation scheme is perfectly justified. Let’s get some sanity into what IFAs should pay. £10,000 is not reasonable.

  10. I agree with much that has been said above.

    I would love to see an analysis of how much risk and loss the consumer would have suffered over the last 20 years or so compared to the direct and indirect costs of the regulation that is and was designed to prevent and control any such losses. Would it not have all been much easier to have had a product levy. Good firms would still survive and bad ones would fail.

    BUT just picking on a small point in the current farce of paying for someone else’s sins. It is being presented that IFA’s as “”investment firms”” are going to have to pay.

    This is enormously misleading to consumers, press, MP’s and others who might be lead to believe that as “investment firms” we had some role in the invention of these failed products. That as investment firms we were performing the same role as these failed stockbrokers.

    Nothing couild be further from the truth..

  11. On the Leader article Mike Fenwick posted:

    1985 – in this very paper, courtesy of Roger
    Anderson, I said:

    “… The over-riding criteria may be your ability to adhere to a set of subjectively assessed rules, and even more significantly, your ability to absorb the running costs involved in enforcing such rules. Ignore honesty! It may be the rules and costs which prove to be your prison.”

    Thus it has proved to be, and the lower the number of “remaining participants in the relevant market” the higher will be their individual costs, both in regulatory fees and in funding the miscreants.

    Nor is this confined to IFAs – ask any Building Society CEO (and yes, there are less of them), how they feel about bailing out the Banks.

  12. I agree with many of the above comments.
    I believe the fairest way would be to calculate the total amount of product supplied to clients/customers from each distribution channel, and them apply the Levy proportionate to that.
    I bet I know where the main bill would fall – the Banks!

  13. You can check what you will actually pay on the FSA website rather than just some average payment as reported in the press. Teh link is

    http://feecalc.fsa.gov.uk/FeeCalc.asp?fy=2010_2011&sc=Consultation

  14. My company has had nothing whatsoever to do with Keydata or the other stockbrokers. If we are forced to pay this unfair levy then my company will simply go out of business! My family will suffer and I will probably lose my house!
    Where can I go for compensation?

  15. Keydata had been selling non-compliant ISA’s for over 7 years.
    Surely the regulater has got to take responsibility for this?

  16. I think there has been some scaremongering over the new additional levey we are facing last year we had an interim levy of £38mil and my bill was about £285, this one will be in my estimate around £700.

    There has to be a more fairer system of collecting the levy, in my opinion it should be a levy of a set % of premium paid on every product. That should be used to pay the majority of fees and leave us with just PI and compliance fees to find.

    In the words of the advert seemples.

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