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Base FSCS levy on risk

Adviser firms with good records should not have to suffer.

Regulatory Legal’s recent High Court defeat in its judicial review of the classification of Keydata by the Financial Services Compensation Scheme is certainly a setback for a fairer investors’ compensation scheme but the fact that the FSCS was taken to court should, hopefully, lead to the regulator reforming the present system which is intrinsically unfair.

We were one of just 200 firms which contributed £200 to the class action. I am disappointed so few IFAs chose to lend their support.

The fact remains that we IFAs are a disparate lot, we do not stick together and we sit by while the FSA’s pro-bancassurer bias threatens our existence. It is very important to take a united stand or we will all eventually be regulated out of business.

FSA head of investment policy Peter Smith recently said: “The absence of complaints is neither an objective measure of competence, nor of good quality advice.”
I disagree. The fact that banks generate 61 per cent of complaints with IFAs on just 2 per cent says it all.

The FSCS levy is badly in need of radical reform. Why should any IFA firm which is classed as low risk, does not sell any risky products such as unregulated investment schemes, structured products, VCTs, EISs, enterprise zone property trusts and film schemes, etc be forced to pay compensation to the ex-clients of such risky firms when they go bust?

Why should the FSA get to keep the fines it levies on firms for their regulatory failings? The money should go directly into the compensation scheme.

Hectors Sants talks about the consumer detriment. He fails to acknowledge the huge consumer benefit most clients get from a long-term relationship with an IFA and his organisation is responsible for massive IFA detriment in imposing a levy on firms such as us.

We, like many IFA firms, have an exemplary regulatory record, we do not conduct risky business. The FSA recently described us as a low-risk firm, we have been established for 25 years and have many happy clients who have been with us for 20 years or more. Yet we still have to fork out for yet another levy.

The compensation sceme levy firms pay should be based on the riskiness of each firm and its disciplinary record.

Badly run firms would bear the brunt of the levy and the FSA’s image would be enhanced.

Tony Byrne is financial planning director at Wealth And Tax Management


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

  1. Interesting idea but personally I believe a “product levy” with the levy on the product linked to the “risk” of the product to a client can see the cost of the levy and if this levy was aligned with a traffic light system so a red product levy meant it was a “high risk” product and a green one a “low risk” product is a better way forward for fairness to advisor firms and consumers.

    The FSA should not come into it at all and a separate “levy” panel be formed of all parties in the industry, not a “biased” one like the FSA.

  2. I understand your point but isn’t the main increase in this year’s levy down to keydata going bust and weren’t most of their products sold through IFAs which were supposed to have done sufficient due diligence on those products and the provider?

  3. James we didn’t sell Keydata, because I didn’t like the look of them. Gut feeling. Why should we pay for them? To all intents and purposes they were a product provider, sod that the FSA decided otherwise.

    Did the FSA know trouble was coming and reclassify them as IFAs on purpose?

    A product levy (which I have advocated since the scheme first began) would have sorted this problem without the pain and suffering on all sides.

  4. What angers me is that however compliant, however honest, diligent an advisory firm actually IS…the FSA are finding ridiculous reasons to “nit pick” with a firms compliance and back office systems….

    It’s the double standards that is being applied to IFAs with this levy only one of many – IFA detriment measures – this regulator enforces on firms and individuals.

    Like others have said – if more and more IFAs leave the industry…there will be very few left to fund the regulator. This levy will be simply be the nail in the coffin for many individuals and firms.

    What will be the point of getting ourselves RDR compliant if the regulator and the Ombudsman are simply allowed to bend the rules as they like, spend like a drunken sailor in a a whorehouse and expect small businesses to foot a huge wad of the bill.

    For the first time, I find myself becoming increasingly sick of the whole industry and thinking perhaps there’s easier ways of making a living!

  5. The problem with a product levy is that it might not raise sufficient funds to cover the consequences of a big collapse. From where would the shortfall then come?

    The Pension Scheme Protection Fund was an attempt to provide coverage against the consequences of DB schemes going down in flames but was itself quickly found to be in a state of chronic insolvency. It didn’t work and almost certainly never will.

    As for KeyData, as I’ve said elsewhere, if it was merely an intermediary then it wouldn’t have been holding the assets which were lost as a result of the failure of LifeMark, the provider.

    That aside, the bottom line in all this is that the FSA’s agenda does indeed seem to be to regulate IFA’s out of existence, by fair means or by foul, and mainly the latter. Worse still, the FSA has statutory immunity from prosecution, which means it’s able to inflict on those it claims to regulate whatever injustices it pleases, all with complete impugnity. Even when it is challenged, it has at its disposal an effectively bottomless fighting fund. That, surely, is the highest priority for the TSC to address.

  6. Tony Byrne’s article says “Why should any IFA firm which is classed as low risk, does not sell any risky products such as unregulated investment schemes, structured products, VCTs, EISs, enterprise zone property trusts and film schemes”….. Hmm. His firm may not be ‘eligible’ for IFA status in future if they never sell any ‘risky’ products, as part of the RDR remit is that all types of investments should be considered – of course, if all his clients are very low risk and not appropriate for even VCTs and simple structured products, then surely he cannot represent a Wealth firm?

    And JulieB, I fully sympathise with you – why bother with the compliance risks, just exit the industry. i feel sorry for the whole swathes of people out there who will suffer once all the ‘best’ IFAs have left the industry …… I suppose they could all turn to the internet, but hey, that won’t solve everything, won’t look at the interactions between different investments and factor in tax, longevity, ease of access, penalties, high alloaction rates etc etc

    What a goddamm awful situation this is turning out to be.

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