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Brace yourself for nasty surprises

At least a debate has started about alter-natives to the Financial Services Compen-sation Scheme. The FSA appears to be willing to listen and is even making some suggestions.

The LIA and Ken Davy are now backing a product levy, with Davy adding ruefully that he advocated the idea a decade ago before it was rejected. What most agree on is that the current system is unsatisfactory. It threatens to bring down good firms along with the bad, the up until now lucky along with the unlucky. It will also be taking a substantial bite out of any profits that advisers big or small are making this year or compounding losses.

The crunch comes at just the wrong time for firms which are having to take some of the biggest decisions of their existence about the future direction of their businesses. At the same time, the silence of most providers, with the honourable exception of Clerical Medical, suggests that next year may be even more painful when the cross-subsidy which fell well short this year may fall to nothing.

For the moment, Money Marketing hopes providers reconsider although as depolarisation bites we assume many will choose to look after their own, that is, IFAs that deliver large volumes of business or multi-ties on whose panels they feature.

So a product levy may be the best long-term solution and Money Marketing is minded to support the idea. We would, however, like to see other types of arr-angement modelled so that the fairest solution for firms and clients can be found.

Unfortunately, it may not be possible to arrive at a solution for next year. Without the Pass scheme and with some high-profile failures likely to hit the scheme, the final bill from the FSA may be an even nastier surprise than last year. Advisers should brace themselves.


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