It is in this spirit that I write this as an open letter to ask you to consider an important and pressing issue currently facing all independent financial advisers regardless of their size. I refer to the ever increasing burden of the Financial Services Compensation Scheme levy.
“No taxation without representation” has been both a rallying cry and a recognition of injustice since the Boston Tea Party yet, not for the first time, all IFA firms have recently been faced with dramatic increases in their compensation scheme levies.
These are costs over which they have absolutely no control nor influence. Quite simply, it is a case of the good firms, who continue to provide their valuable services to consumers, paying for the bad who have either been for-ced out of business or who have chosen to deliberately walk away from their responsibilities by dumping their liabilities on the rest of the sector.
To add to the injustice, most of these liabilities arise not because advisers have set out to mislead clients. Rather they have presented in good faith products they believed were designed to meet their client's needs only to find that dramatic changes in market conditions, again matters over which advisers have no control whatsoever, have led to disappointing results.
Ten years ago, I called for a product levy to be established, a call which was unfortunately rejected. Now, as the failings and unfairness of the current system become ever more obvious, I believe it is time for the issue of a product levy to be looked at again and I respectfully ask that the FSA do so as a matter of urgency.
The principle of a levy is already accepted in gen-eral insurance. Given the enormous volume of premiums in life, pensions and investments, I believe the impact of a levy on any individual policy would be very small whereas the benefit to the long-term stability of the financial services sector, and therefore its clients, would be significant.
I appreciate that the establishment of a product levy will take time, indeed it may well require some adjustment to current legislation but I am confident that if the will to make the change is there it is achievable.
Without action, the logical or, more accurately, ridiculous result of the current compensation system is that ultimately a single IFA could be faced with the whole of the costs of the FSCS. This is not only tot-ally contrary to natural justice and probably human rights but also cannot possibly have been the intention of Parliament when passing this difficult and complex legislation.
In the meantime, the product providers, who to their great credit have helped IFAs in previous years, should be enc-ouraged to increase their assistance to smaller companies which are least able to meet the costs which the current compensation system arbitrarily imposes upon them.
I hope you will agree that this is an important issue which needs to be add-ressed and that as a matter of urgency the introduction of a product levy to replace the current system should be fully investigated.