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Advisers push for FSCS product levy

Davy.jpg

Advisers have urged regulatory authorities to consider introducing some form of product levy as an alternative means of funding the Financial Services Compensation Scheme.

The recent FSCS £93m interim adviser levy, which followed an interim levy of £80m the pre- vious year, both mainly due to Keydata, plus a £40m annual FSCS levy bill for 2011/12, have caused outrage among advisers and driven calls to urgently reform the current funding model.

Tenet distribution and development director Keith Richards says radical reform must be on the agenda. He says: “The suggestion of moving to a levy on every product is perhaps a feas- ible option and certainly one worth considering. An alternative could be a regulatory and compensation scheme premium charged as a percentage of the investment or product con- tribution. This would not be dissimilar to insurance premium tax, although in this instance it would fund regulation and compensation.”

Evolve Financial Planning director Jason Witcombe says: “A product levy of some description seems to feel like a fairer way of funding the scheme. Given that the FSCS is effectively an insurance scheme, a levy would link that insurance to the sale of a financial services product.”

SimplyBiz chairman Ken Davy (pictured) says: “The present system is fundamentally flawed because it requires the people who have not contributed to the prob- lem to pick up the liabilities. The simple, fair and equitable solution is a product levy.

“Paying a fraction of a penny for each £1 of investment would mean a very small payment, but would ensure that the people who benefit, consumers, would make a contribution.”

Aifa director Robert Sinc- lair says: “There are lots of opt- ions for reforming the FSCS, none of which are perfect. There is an argument that says a pro- duct levy might work better than the current system. But there are problems in deciding which products get caught, what level the levy is at, who holds it, and whether consumers recognise it as paying for protection. That said, a product levy would be a simpler way of funding the scheme and we think it is a positive alternative worth pursuing.”

The FSA has delayed a review of FSCS funding, which was due to begin late last year, due to the upcoming regulatory shake-up.

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. A product levy in my view makes sense if set up correctly and fairly and could also help consumers judge the risk of the product but the current system and indeed the FSA are utterly flawed and to continue with them in the current format is just asking for never ending costs with little benefit.

    Don’t expect anyone to take any notice though as it is hard to find anyone who actually has any control or will admit to it and Mr Sants has a vested interest in keeping it all going and this Government seems either to believe they have little power to make the FSA do any different or just don’t want to.

  2. So it if fine for the FSA to delay a review of FSCS funding, they might be a little faster out of the blocks if they had to pay for it!
    If any more major players leave the market along with 10000 small IFA’s there won’t be many left to pick up the ever increasing tab post RDR.
    The fees paid to the FSA will reduce and I can not see the FSA reducing their costs…….oh sorry they get to keep the Fines!!!
    A regulator should regulate within their cost base and any fines should be paid to the government NOT be classed as an income stream and budgeted for in the accounts.

  3. Not sure that the public would like to pay for the sins of advisers and providers anymore than advisers and providers do.

    Now if we had a regulator that regulated the products rather than the advice process there would be less need for any compensation scheme.

  4. The main gripe with the current system is that it “feels” unfair to pay for the mess left by others, particularly if it was a mess that you saw coming and didn’t participate in. However I do think the link to revenue is probably right (maybe not the amount).

    Linking to products may solve the problem of not coughing up where there is no involvement, but I would need more convincing that the powers that be can get agreement on product categories, sub categories and associated risk premiums without most of us finding flaws in the methodology.

  5. Given his reaction and attitude in the debates over RDR and MMR …

    Hands up all those who harbour no doubts whatsoever, not one – that Mark Hoban can be persuaded to introduce a product levy – and is equally willing and able to persuade the European Union of its merits?

    For those who espouse the term “independent” financial adviser – bear in mind that independence relates to not being under the control of another – being self sufficient.

    The genesis to resolving how best to address consumer protection – starts with gaining the acceptance of the consumer that there are better alternatives to the status quo.

    EG: How many consumers are happy at the effects of bailing out the banks?

    Perhaps, as I suggested in an earlier article it is long overdue that IFAs took an interest in alternatives to the present system of banking – not least because it would reduce the levels of complaints in that sector, and increase the element of competition – now might grab the attention of the consumer – and is that not exactly what the Government is currently looking for through the Banking Commission?

  6. I agree wholeheartedly with John Blackmore. Why should we continue to tar everybody with the same brush and why should the innocent majority pay for the sins of the few. Perhaps a regulatory body that at long last recognises the need to be involved at the design stage of financial products will have some material affect and accountability.

  7. I also agree with John Blackmore – except that the public IS paying. These costs have to be factored in somewhere.

  8. Is it not the product providers that pay the vast majority of the levy? £44m for the Life companies this year, but also big numbers for the collective and deposit providers too.

    Is the message advisers don’t want any fees coming out of their profits. The big boys can pick up the cost, they won’t notice a few million, or is it that the amounts being asked of advisers this time are unfair which has a different answer.

    Why should the well off who can afford to use the services of an adviser be subsidised by the less well off that cannot. This is what would happen with a product levy becuase it would apply at the product level if advice was given of not.

    When did a life insurance company last go into default, like never becuase the reserves held have to be huge.

    If there was a product levy offshore products could gain an unfair cost advantage or would they be excluded from FSCS.

  9. Unfortunately Andy’s point is off the mark – the fines don’t increase the FSA’s income, they merely redistribute it amongst the fee-paying population as they’re offset against the next year’s funding requirement levy.

  10. The levy has to be reviewed prior to the RDR. Post RDR there is a switch to fee based advice which may or may not come from the product. Indeed the client fee may not be related to any product.
    The FSCS levy is broken and now unworkable. The FSA has given different guidance to advisers as to how they should complete their fee tarif data which shows that it cannot be administered fairly. Even the FSA cannot manage it. Also a review of the levy must surely go hand in hand with capital adaquacy changes and the switch to 3 months EBR???? Aren’t these proposals intended to make the polluter pay?

  11. Reminds me of the British Gas advert, people on their own little planet floating about in space…

  12. Anonymous from Preston 10th February 2011 at 3:26 pm

    Am I being over simple but are the FSA not a limited company? There is obviously a groundswell amongst the current IFA community that enough is enough with the current levels of costs and levys being placed on us but nevertheless this limited company keeps doing just what it likes and ingnoring our concerns. Its about time that the IFA community worked together and protested the current regime by simply refusing to pay any levy’s or fees for that matter. If we all did it together this limited company would have no choice but to go bust!! Then they might listen to us. They need to work alongside us and not to become a dictatorship.

  13. An opinion to some of the points mentioned earlier.

    When you insure your car you are paying an additional premium for those who do not insure their cars and those who have accidents, neither of which is your fault but you pay a levy as result in your premiums.

    Your also pay to compensate those who make mistakes in the NHS via your taxes and their compensation bill is budgeted to be £15 Billion payable over the next ten years and rising.

    There are undoubtedly many other such instances where a premium or levy is paid to protect others so having a product levy that is open and obvious to all is not such an unreasonable proposition. If people don’t want to pay it they can refuse to buy the product. If they don’t want any protection then we can get rid of the FSCS but somehow I think consumers DO want the protection for a small extra cost.

    As to offshore products having an unfair advantage then the consumer must decide if they want protection in the event the product or advice (under UK regulation) is worth the small additional cost. All products sold in the UK should in my view have the levy added as a requirement. Buy offshore and take the risk such as Iceland’s Banks. etc.

  14. @ David IFA – Sorry to to be clear. Yes the public are eventually paying. In fact this has been the main undeniable result of 25 years of regulation. The public are now paying 2 to 3 times as much as they were 25 years ago.

    My point about the Public not liking the idea of a product levy is that it would then be transparent. At present they don’t realize and make no fuss.

    On balance I think that a product levy is the way to go but not as yet one more cost but rather with a proper Product Regulation regime. 25 years of obsessively over regulating the Advice/Sales process has clearly failed. There have been some small benefits but at what cost ?

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