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Advisers hit out at FSCS for ‘heart sinking’ £20m interim levy

Advisers have hit out at the Financial Services Compensation Scheme for landing life and pensions intermediaries with aninterim £20m levy after a wave of Sipp misselling claims.

Firms began receiving invoices on 23 March and will have 30 days to pay, or to use existing credit facilities.

The FSCS says the move was driven by the costs relating to bad advice to transfer funds from existing pension schemes into Sipps.

It says in many cases the Sipp fund was then invested in non-standard asset classes which have become illiquid, including investments in offshore property schemes.

The move comes after the FSCS announced plans to increase 2015/16 levies for advisers earlier this year, with life and pensions advisers’ levy rising from £33m in 2014/15 to £57m.

Page Russell director Tim Page says: “This is nearly two thirds of last year’s levy for life and pensions intermediaries. Once again advisers are having to clear up other people’s mess, despite being told by the FSCS we were paying higher annual levies to prevent these kind of volatilities.

“Interim levies are hugely irksome because they are so difficult to budget for. It feels very unfair that – like the vast majority of firms – despite not touching this type of business with a barge pole, we are having to pay for the few which did.”

Almary Green managing director Carl Lamb says: “This announcement makes your heart sink. It is very frustrating that prudent advisers are made to pay for those who have done wrong.”

The FSCS says the primary driver for the interim levy is its decision to start paying compensation for losses in the value of investments held in Sipps, as part of advice claims over Sipp transfers.

The lifeboat scheme announced the change in policy last month. Previously, it would only compensate consumers making claims about advice to switch to a Sipp for lost pension growth and charges.

It will pay out a maximum of £50,000 per investment claim, the costs of which will fall on the life and pensions intermediation class.

FSCS chief executive Mark Neale says: “I fully recognise that demands for money outside the annual levy cycle are never easy for firms.

“We do not have 20/20 vision. We do not always have sight of firm failures in the year ahead when we set the levy.

“We cannot always predict the volume and size of claims arising from failures we do know about.

“And there can always be new legal or regulatory developments with implications for FSCS’ judgement about the eligibility of claims and the quantification of losses. This supplementary levy illustrates exactly these uncertainties.”

Neale says the volume of Sipp claims carries “cautionary lessons” for the Government’s pension reforms being introduced in April.

He says: “The people we are compensating now were not reckless or happy-go-lucky. They simply wanted to make modest retirement savings go further and got very bad advice about how to achieve that.

“There will be many more people from April who also want to maximise the income generated by their retirement savings. It is critically important that these people receive guidance not only about the options open to them, but also about FSCS protection of the different products they might choose.

“That is why FSCS is working closely with the providers of the Pension Wise service to ensure people understand FSCS protection.”

The FSCS’s plan and budget for 2015/16, published in January, revealed the overall levy will rise from £276m in 2014/15 to £287m in 2015/16. Investment intermediaries will contribute £125m next year, up from £112m in 2014/15.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. And if you don’t pay their emailed invoice within the month they fine you another £250……
    I have heard reported that some firms interim levy is nearly as much as they have to carry in capital adequacy… what happens if the sole reason for a breach of cap ad is this interim levy and the firm cannot or will not top up their cap ad accordingly? FCA remove authorisation, which is removing someone’s right to work and all because of the FCAs failure to regulate SIPPs adequately despite repeated warnings about non standard assets being placed in SIPPs for several years!

  2. someone last week said that it would be similar to fining Kia and Seat now for mistakes made by British Leyland in the 1970’s…..terrible!

  3. I have found that many of these SIPP investments are being placed by un- regulated people masquerading as financial advisers.
    We have been notified of a case where the ombudsman is holding the company responsible for an adviser (who is no longer with us :-)) who transacted unregulated business unbeknown to the company. There were 6 cases in total mainly the advisers relatives. The total investment was £180k. The adviser past the business over to a guy who is unregulated and it was this guy who transacted the business with a well known company.
    The ombudsman has ruled that our company is responsible and to compensate these so called clients, with whom we have no record of!! Our company will be out of business as we cannot afford to pay compensation. The PI company says that we are not covered because it is UCITs and unregulated.
    35 people will loose their jobs because of a system that is illogical and obscene and a regulator that does not understand the workings of the financial industry.
    The cure is that all business should be regulated.

  4. Has anyone asked Mr Neale to identify the ‘new legal or regulatory developments’ which formed the basis for the FSCS’s ‘decision to start paying compensation for losses in the value of investments held in Sipps’ when previous compensation had only been paid with respect to the advice to move to the SIPP.

    From what I’ve read the advice given by the regulated adviser to move to a SIPP was not the problem and the FSCS have unilaterally decided to move the goal posts retrospectively by deciding to award compensation for the ‘unregulated advice’ to move the SIPP assets into UCIS structures.

  5. As the FSCS was set up under FSMA then you have to assume that the circusmtances under which they can pay out compensation are clearly laid out.

    Has there been a legislative change that means they can now pay out, or has someone made an arbitary decison to pay out, in circumstances that have not been allowed previously?

    Are there any legal people out there that can answer this.

  6. There is nothing fundamentally wrong with SIPPs, unregulated funds however are another story. We do we, who don’t recommend unregulated funds, have to pay for those that do?

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