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Aifa rejects product-based levy for FSCS

Aifa deputy director Fay Goddard has dismissed advisers’ calls for a product-based levy to fund the Financial Services Compensation Scheme.

During a debate led by FSCS chief executive Loretta Minghella at Money Marketing Live earlier this month, several advisers argued that consumers should have to pay for the scheme through small additional charges on products.

Minghella argued that the system would be too complicated to administer and customers could end up paying multiple levies. She said this could make advisers reluctant to shift clients between different products, which might otherwise be the best thing to do.

Goddard says a product levy would be unworkable as it would involve risk-profiling products. This would create its own dangers, as seen in the past when certain products were labelled as low risk, only to cause problems further down the line.

She says much of the burden on the FSCS stems from poor advice rather than faulty products.

Goddard says: “Linking the funding of the compensation scheme to individual products does not work. This would involve risk-profiling products across the whole retail financial services sector, which has proved to be dangerous in the past. Look at what happened with low-cost endowments and zeros, both of which were branded low risk. Their risk profile has changed over time.”

DPB Independent Financial Services principal David Barnett says: “If the public wants the protection of the FSCS, then they should pay for it. There should be a flat product levy and the amount of compensation should be divided by the millions of policies sold. This would create a tiny charge on consumers.”

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