A small number of advisers are spoiling it for the rest of us. Along with every other IFA firm in the UK, we got our invoice recently for the latest Financial Service Compensation Scheme interim levy. This goes towards paying compensation for the victims of such firms as MF Global, Keydata, CF Arch cru and Wills & Co.
We collectively have the financially painful responsibility of funding the £60m of compensation costs for customers of these firms.
When we got a similar invoice this time last year, it made me angry enough to gather nearly 700 signatures on a petition for a fairer FSCS. Nothing much has changed. We are still waiting for the FSA to consult on reforms to the funding structure of the FSCS and even when this consultation paper is published, few of the advisers I have spoken to recently hold much hope of genuine reform.
Assuming the FSA is not going to change its methodology and categorise fund managers and stockbrokers more fairly to remove them from the same sub-class as financial advisers, maybe we need to consider a different approach.
A couple of months ago, I applied for my first-ever statement of professional standing. By the end of this year, every adviser will need to have one in order to trade. If we view the FSCS levies like a fire, removing one of heat, oxygen or fuel should bring it under control.
We might not be able to influence an improvement in regulation to prevent these toxic investment schemes from being sold to retail investors in the first place. The promised early intervention strategy from the Financial Conduct Authority offers some hope but not much.
What I believe we can do to bring the FSCS costs under control is deprive toxic investment schemes of their oxygen. Advisers need to proactively prevent these schemes from being sold in the first place. If unregulated schemes are not sold to retail investors by regulated advisers, there is no recourse to the FSCS when things go wrong.
This is where the statement of professional standing can play a role. An SPS confirms three things about an adviser – in addition to holding required qualifications and completing relevant CPD, it also confirms that an adviser has adhered to a code of ethical standards.
Reviewing the CII code of ethics and conduct, there are several items that a professional body could use to stop advisers from flogging toxic investment schemes. In particular, advisers who sign up to this code must “ensure any conduct does not bring the profession into disrepute”.
The FSA has handed accredited bodies a lot of responsibility for the conduct of individual advisers as part of the RDR. Rather than telling the FSA when we see examples of bad behaviour, we should instead report to professional bodies and place the onus on them to withdraw the ability to pollute the sector before that pollution becomes widespread and costly.
Martin Bamford is managing director at Informed Choice