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Adviser trade body: Drop the term ‘product levy’


Advisers should stop using the term “product levy” when calling for Financial Services Compensation Scheme reform, adviser trade body Libertatem has said.

In its submission to the FCA’s ongoing review of FSCS funding, the trade body fronted by former IFA Association director general Garry Heath argues that talk of a “product levy” has not given sufficient weight to historical sales, advisers moving away from product-centric approaches and how providers would incorporate costs into their distribution models.

Libertatem still supports the idea of a product levy however, along with other industry figures like Simplybiz Group chairman Ken Davy.

A product levy is normally understood as a charge on top of a product that would be paid for by consumers and put towards the FSCS. The charge would ultimately fall on consumers in most suggestions, but would be facilitated through providers paying small amounts on each pound of investment or premium they received.

The submission reads: “The phrase ‘product levy’ is unhelpful and has become shorthand for a wider charging scenario. It presumes that this year’s product sales will pay for this year’s FSCS charge. This is only marginally better than the status quo as such a charge on new products only would be a disincentive to obtain new advice.

“It is also the wrong nomenclature as advisers no longer sell products. Within the phrase is a presumption that the product provider would absorb the cost of such a levy within their overall costs. This would be unfair on them and creates unnecessary conflict.”

Political positioning

At an early roundtable meeting for the FSCS funding review, the FCA did not rule out introducing a product levy entirely, but made the point that there would be insufficient time in the current parliamentary calendar to change the relevant legislation alongside the review.

In a letter to Treasury committee chairman Andrew Tyrie earlier this week, FCA chief executive Andrew Bailey confirmed that a product levy was still under consideration.

The Personal Finance Society has also pushed for a product levy, writing to then Chancellor George Osborne to press for its inclusion in discussions despite lack of legislative leeway.


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Dont see the need to change the term. At the end of the day that is what it would be. It would be a clear and transparent levy for the protection the regulator and FSCS are so keen that consumers get. Just simply put it on the product with a clear label of £x of your investment is charged in the product for your FSCS regulatory protection. My view is that the F-Pack do not want this as it would highlight the costs in our charges for some of our levies.

  2. As an investor who chooses not to take financial advice I can see no reason for a product levy. why should I have to pay an additional amount because other investors do not wish to take the time to check out their financial adviser ? Let the polluter pay by all means so long as it is not an investor who has not taken financial advice.

  3. I suggest that Mr Tyrie recommends that the Treasury picks up the tab for regulation and compensation as it stole the proceeds of bank fines well in excess of £1 billion – fines which previously were applied to reducing the cost of regulation.

  4. Trevor Harrington 2nd November 2016 at 12:00 pm

    I don’t know how many times we have floated this concept of a “product Levy” to the Regulator, but it is a lot of times.

    They have been consistent (for once), in as much that they have always steadfastly refused it.

    They do not like the fact that everybody (the clients or customers as they would say) would have to pay equally for the bad practices of the few bad Advisers in our community. I agree.

    The issue is to get the “bad guys” to pay for the “bad guys”, and in my opinion, to make that payment motivational to financially deter as much future bad practice as possible. Quite frankly, you will never do that by dividing the huge cost of mal-practice in the Adviser community between millions of policyholders through a product levy, even if that product levy turned out to be just a few pence per policy holder.

    The only way to sort this issue out properly is to split the compensation costs between those who receive the complaints, in direct proportion to the numbers of complaints received. Then it would be fair in as much that :-
    a) the client does not pay
    B) the miscreant Advisers do pay and
    C) it is motivational on the Adviser community to tidy up their act.

    Why does the Regulator refuse to adopt this approach ?
    Could it be that the Banks would finish up paying most of these costs ? If so, it seems perfectly fair to me, but perhaps the banking sector lobby groups are too powerful to allow it to happen.

  5. How does it become unfair on the product provider? Even allowing for ‘clean’ contracts post RDR, they do not have the initial outlay of commission any more. Even when commission was clawed back over 5 years, there was still the upfront cost of paying it to contend with.

    I have little sympathy for product providers at all post RDR, as they get everything (liability free) and pay nothing for new business, other than for processing it onto their systems!

    So if we are genuinely all in this together and they value our future relationship as they claim, then they will gladly take a product levy on the chin and consider that they are getting off lightly!!

  6. For various reasons already set out elsewhere, I don’t see how a product levy can work at all satisfactorily, not least because the purpose of the FSCS is to compensate investors for losses incurred as a result of bad advice, typically without due regard for ATR and CFL. The product itself is not (necessarily) the problem and those who choose to invest without taking advice must accept that they’ll not be afforded any protection from the FSCS. This would have to mean no levy on non-advised investments (you can’t charge people an FSCS product levy if, as non-advised investors, they wouldn’t qualify for FSCS protection). This, in turn, might well tempt people to make potentially unwise investment decisions without taking advice, which hardly seems a good thing to encourage.

    A risk-based levy on advisers has to be the way forward ~ but the problems with that are who will decide which adviser firms are put in which levy band and how much time would it take? There’d have to be an appeals process as well, as some firms might well consider themselves to have been unjustly allocated to a costlier levy band than their business mix actually warrants. Nothing is easy.

    • Trevor Harrington 2nd November 2016 at 5:47 pm

      Evening Julian,

      just give the FSCS levy to those who get the complaints, and in proportion to the numbers of complaints which they receive. The Regulator already receives confirmation of the numbers of complaints we all receive, so surely it is not beyond their wit to calculate a percentage figure !

      • What about those that do not report complaints or even have a competent process for identifying them? Or those that receive a stream of complaints that are vexatious – or as Julian says, are based purely on the product. Its just too complicated and people in every case will be unfairly charged.

  7. Let’s just call it Investment Premium Tax.

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