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Advisers hit by 10m increase in FSCS charge

The Financial Services Compensation Scheme has all but confirmed that advisers will be hit by a 10m fee increase due to a predicted threefold increase in endowment complaints.

The FSCS’s latest budget, published just two months before the end of the financial year, predicts that advisers will see their initial levy rise by almost 30 per cent to 47.5m from 37.4m for 2005/06.

The increase is another blow for the sector as the levy for this financial year represented a 50 per cent increase on 2004/05 levels.

The levy includes an expec- ted shortfall of 2.4m for this financial year, which will be carried forward to 2006/07, but advisers will not have to pay an additional levy this year, as was feared.

Advisers are waiting for the results of the FSA’s discussion paper on restructuring FSCS funding arrangements, expec-ted in the first quarter of the year. The review follows criticism that advisers are shouldering too much of the burden, particularly for endowment misselling.

The FSCS has whittled the number of precipice bond claims down to 500. A levy will not been charged for split caps as the FSCS says it is too early to make any firm predictions. But over 4,000 investors have already contacted the administrators of Exeter Fund Mana-gers, indicating that they may have a claim. The FSCS is looking at where these costs will be allocated.

Other fee blocks look set to escape lightly, with the overall levy on the industry dropping from 138m to 75.4m.

General insurers can exp- ect a 42m windfall as the FSCS refunds the surplus from this financial year after lower than anticipated compens-ation payouts and significant recoveries from general insurance estates.

Chief executive Loretta Min-ghella says: “The ratio of levy to turnover is very high for advisers compared with other levy blocks. That is why the debate has moved on from whe-ther the funding structure should be changed to how it should be changed.”

Aifa director general Chris Cummings says: “This increase is hugely disappointing, especially since firms that have done nothing wrong are paying for the past actions of other firms.”

Innes Reid Investments senior adviser Jim Turner says: “The system is unfair as fees keep on rising for firms that have not sold any endowments. The levy needs to be calculated so that firms that cause most of the problems pay more.”

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