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Carl Lamb: FSCS costs push advisers to breaking point

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I have always been a supporter of tighter regulation and the cleaning up of our industry. Greater transparency and protection for the client is hugely important and the loss of some of our community’s less professional players has certainly been for the good. However, it is becoming increasingly clear that the way we provide protection for clients and pick up the pieces when things go wrong is just not working any more.

Why do I feel that way? I (along with every other IFA firm principal up and down the country) have just received my latest bill from the FCA. Shockingly, I have seen a staggering 116 per cent increase on last year. And I am not alone. One principal with whom I have spoken reports an increase of 319 per cent since 2013.

Firms simply cannot sustain that level of input. Of course, the problem will escalate as the impact bites: every increase knocks a few more firms out of the industry, leaving the increasing demands of the FCA and the Financial Services Compensation Scheme to be shared out among fewer and fewer companies.

We have seen that the FSCS is paying out more amounts of compensation to clients of investment firms who have gone out of business: an increase of 156 per cent in the year 2014/15. Yes, these cases must be compensated but the issue I have is with the direct relationship between the compensation fund and advice firms.

At the end of the day, it is the client who ends up paying, with increased costs being passed on as increased fees. Every firm principal I have spoken to has confirmed they have been forced to raise fee levels. The days of unscrupulous advisers reaping “fat cat” profits are long gone. Margins are now tight and the day is getting close when the remaining good firms decide there is no chance of continuing to be profitable without making advice unaffordable.

I am tired of being held responsible for compensating clients of bad firms who have let them down in the past. What other industry expects those who have obeyed the rules and played fair to stump up the cash to help the customers of those who were less honourable? It is the dynamics of the madhouse.

It is time to throw away the broken model and start again. There needs to be a fresh, innovative approach to planning ahead for the industry so that advice can remain accessible to all without penalising those who work hard to deliver a transparent and professional service. It is no exaggeration to say the advice sector has reached a tipping point. It will only take a little more pressure to send it crashing over the edge.

From my side of the fence, the most sensible solution seems to be to impose a levy on each policy or plan sold. Others may have alternative suggestions but let us at least have that debate. And let us do it now, while we still have an advice sector to save.

Carl Lamb is managing director of Almary Green

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Comments

There are 41 comments at the moment, we would love to hear your opinion too.

  1. Darren Turnbull 11th August 2015 at 4:13 pm

    Our fees have increased this year from £4.5k to £14k which is just ridiculous considering we have had no complaints and have never had a case sent to the FSCS and as a Chartered Firm I feel strongly that we should not be continuing to pick up the tab for bad advice. I cannot believe that after all the increased regulation, fee increases and fines etc that we are still seeing ever increasing regulation costs and firms that continue to provide bad advice. We need a change very quickly as otherwise very soon there will be mutiny where firms that are left will say enough is enough. I wrote to the FCA to complain on receipt of our invoice for this year and was advised basically that we have to pick up an even bigger share of other people’s mess. Perhaps we need to all get together and say no we will not pay unless change happens. When you see the amount of money the FCA has wasted over the years it is criminal.

  2. Mine increased just over 127%

    Can I suggest every-one puts his or her increase to this article to get a true reflection to this total outrageous and unacceptable raid on ours and our clients bank accounts.
    The good, honest and ethical adviser firms should not be paying for the bad, corrupt, and feckless.

    Not that the FCA care, but I am livid !

  3. The problem is that those dispensing the compensation and making the rules don’t care and certainly don’t have any idea of how tough business is so no incentive to make changes to a corrupt system. Essentially they are just parasites living off our hard work.

  4. Totally agree – only a matter of time before we’re all regulated out of existence.

  5. Christopher Lee 11th August 2015 at 4:28 pm

    I still don’t quite understand why money from any fines imposed for poor practice or behaviour isn’t used for the compensation fund instead of the funds going straight to the Treasury. At least this way there would be a degree of poor practice paying for poor practice instead of rinsing an ever reducing pool of good guys. However this would not be popular with Mr Osborne

  6. I wonder if the firms experiencing the largest percentage increases are the same firms that previously benefited from being charged at the lower tariff – i.e. those firms handling client money were charged less than those that didn’t.

    • If that is the case then Rachel, then why aren’t the the firms who were over charged £118 million repaid !!!

      OR ?

      At the very least had their FCA fees reduced to allow for this ? or better still all these feckless FCA employees made to forgo their bonuses, pension deficits, nice gym at canary wharf, very golden hand shakes, nice team meetings at pennyhill, etc etc etc

      They take the p–s and then some !!

  7. There should be , as was discussed some time ago at AIFA, more of a correlation between the degree of pollution and the the payment, which is at the core of the injustice that you highlight.. The categorisation criteria and resulting output that has long been used does remain questionable and may be a good place start an exercise in recalibration. Carl , your protestations are , as usual, well founded but you are a single voice. Admittedly your views are replicated by most in your community , but I suspect the key may well be in finding , or founding , a single unifying voice which has the credibility and cogency of argument that those who need to listen have failed to see in recent years. I am afraid I also do not see that body in existence at the moment. P

  8. Simon Ravenhill 11th August 2015 at 4:36 pm

    We are an intermediary – Our SC02 fee has gone up more than 700% from 2013 to 2015 with same tariff data, we cant go on like this.

  9. Douglas Baillie 11th August 2015 at 4:38 pm

    125%.
    Apart from that, one of the main problems is the amount of unsafe judgements and ridiculous awards for compensation that are coming out of the FOS, with most small Financial Advice firms not having the resources to defend themselves.
    This injustice is exacerbated, and brings into sharp focus the fact that a complainant who disagrees with the Ombudsman’s decision can appeal it in common law, whereas that privilidge is not available to the defendant (the adviser firm), who are not allowed to appeal any final award or decision. FOS are therefore Judge, Jury and Hangman. no wonder we are seeing our FSCS levies escalating. FOS is out of control.

  10. Agree with everything you have said: BUT don’t expect anyone who can do anything about it to be reading these articles. I have been in the industry for over 25 years, seen the fines to financial institutions go through the roof and still have no idea what “they” (whoever they are) do with the hundred of millions of pounds that “they” rake in.
    Perhaps the cost of potted plants has increased.

  11. Time maybe for large numbers of us to join Garry Heath’s Libertatem and put up a fight. The costs are a lot less than facing more insane increases and we’ve been ‘toothless’ as a profession for too long. It’s become like a ‘Western’ where the good guys get repeatedly shot by the baddies, and can’t even afford a shot of moonshine to mask the pain.

  12. Mine has increased by 105% on last years payment – I have to confess to being utterly ‘gobsmacked’ by this bill. This may be a naive question – but is the bill affected by who you are regulated by? I am an IFA (still) and operate as an AR of network (who generally I am very happy to be part of) – am I being penalised for this? Would operating as a DA firm reduce the costs here? Thanks in advance for any comments.

    • Hi David, I was thinking the same thing, particularly as my network seems to divide the F-Pack bill by the number of RI’s so those that write less business subsidise those that write more. My firm is quite new so its taking time to up our earnings. My bill is not divided between FCA, FSCS etc but overall is up 116%.

      I will be investigating DA because the costs for the F-pack and Network are now well over 20% of turnover, which is unaffordable. I also have a view that most of the compliance stuff that we do is totally unnecessary and I suspect that you are more vulnerable to regulatory attack as a member of a network (big resources for fines and pay outs – FCA like this as it shows they are doing something) than you are as a small DA practice. There’s no value to the FCA in picking on a small firm because they have limited resources and can’t pay out much. So providing you are doing a good job as a small DA firm you are likely to be safer as well.

      • Soren – my bill is £4220 per RI (there is myself as principal and one other regulated person in my practice) Can I ask what your bill was in total? It would be interesting to compare. My percentage payaway including all fees the network charges will be around 20% of turnover and like you I think that is far to high. If you are not comfortable posting the figure, I do understand.

  13. Nick Pilkington 11th August 2015 at 4:56 pm

    Part of the problem is that the incentive for the FCA & FOS is that bad advice continues unabated as this will enable them to expand their empires. If they were truly successful in their roles bad advice would be reducing & so would complaints & compensation leading to reducing costs at FCA & FOS together with reducing staff levels. I can’t see them being happy with that outcome although consumers, IFAs & the industry as a whole would be delighted. One really does wonder who they believe they represent (apart from themselves).

  14. Our fees have gone down slightly this year! Mind you, so has our turnover! I think that costs are getting out of hand though. I have worked out that over the last 18 years of being directly authorised we have paid over £400,000 in PI premiums with just 2 small complaints upheld from the 4500 clients we have dealt with. During this time, other IFAs have just walked away from bad advice and left the remainder to pick up the tab via the FSCS. It would appear that ethical behaviour and staying in business to help your clients gets punished via the FCA and PI fees. Someone needs to get a grip!

  15. 150% which I find unacceptable. Can we not just withhold the increase and pay the same as last year?

  16. I became directly authorised in November 2014 and so only paid FCA fees as FSCS levy is not charged in the first period. My bill for 2015/2016 is £3.5k for FSCS alone and this is for a new one man band firm! I’ve been in the industry for 28 years and never had a complaint; don’t touch unregulated products and don’t advise on high risk investments.
    It is simply wrong for the Government to continue to take the proceeds of the fines issued to the big boys. Some of this money should be paid into the FSCS pot so at least the wrong doers are then compensating the victims indirectly. We need to lobby Government to change this.

  17. I am just as peeved about the increased costs, mine are up around 60%… cannot recall precise figure are out of the office at the moment.. but had mine last month and already paid 2 instalments of the 10 using the payment facility.. (they always take them early).

    However, simply stating the increase isn’t really helpful.. £10 increasing to £20 is a big % increase, the issue is a % of operating costs and turnover in terms of sustainability… for the sake of balance and perspective, a medic may well pay 10% of turnover for their PI cover/ GMC fees.

    I am also mindful that some may have been misrepresenting their RMAR data, knowingly or otherwise… and of course those like Carl that have been acquiring other firms are having fees based on advisers, turnover etc…. so more is more… key issues are whether the costs are even vaguely “fair” by which I mean the categorisation of adviser firms, (as Martin Bamford and others have made plain before) lumped in and paying for American investment firms…. et al…not to mention whether the “settlements” are indeed also fair (FSCS/FOS) which is where the bulk of the increase resides.

    Certainly the system is utterly daft – PI cover either has failed (perhaps due to misrepresentation of information or misunderstanding). The firm has failed, but not necessarily because of deliberate malpractice… but there will be those that do. The main problem as I see it is that PI remains utterly complex and should be standardised, the data should correlate to RMAR and there is absolutely no way a typical adviser firm is the same as a US stockbroker with an office in London. Bonkers doesn’t begin to describe it… but thats what it is…but not for the reasons of % increase… which is just about how much extra we are all paying… rather than WHY.

  18. These FSCS levy increases are entirely down to abject regulatory failure over a very long period of time. Too much regulation, too expensive, too ineffective from an organisation that has mushroomed into a monolith. The solution is to reduce the size and scope of the FCA as soon as is practicable. It needs to focus on the polluters and do its consumer protection job to a much higher standard than it currently does.

  19. SJP levy is estimated at c.£20m so it would appear the market needs another 4 or 5 firms of similar size to pick up the majority of the maximum levy. Whether that be Standard Life, Old Mutual, Banks re-entering the retail market through online advice or whatever it really doesn’t matter as long as they write volume business and contribute accordingly.

  20. Perhaps we should all write to our clients and let them know what is going on (as above). Tell them we are going to be reviewing our fees in light of….the above. Suggest they should all write to the FCA and complain about the TOTALLY UNSUSTAINABLE hike in fees which may / will / could be the reason for an increase to their (clients) fees. They should also ask where the £millions in fines go. I wonder how many thousands / tens of thousands / hundreds…..(OK a pipe dream) could land on FCA doorstep. But then we would pay for FCA to answer each one!!!

  21. ….And they complain about an advice gap, when these sort of situations are a large part of the cause of it!

    It’s vital that clients are made aware of what they pay for, that is what RDR is about and that includes the portion of their bill that is not for profit!

    Solution is simple, product levy or share of fines to pay for FSCS and FOS (we pay FCA), but they don’t need to listen and so they won’t

  22. There is always light at the end of the tunnel… maybe not as we would like and as immediate as we would like it …the simple mathematical fact is the fees cannot just keep rising exponentially as they have over the past fee years, what with the likelihood of even more banking skeletons coming out of the cupboard in the years to come. The simple reason is it will become economically impossible for the small IFA business to keep practicing. They have been the backbone for the provision of financial advice to the masses “up your street” for the past 30+ years. We have not yet reached that point.. BUT IT WILL HAPPEN.
    I agree with the commentators who say the FCA don’t care..They probably don’t and haven’t got the time to worry about it (on our behalf)…and if they do, they are so concerned to protect their own interests for the problems looming ahead that they will inevitably have to answer for, that they simply haven’t noticed and they won’t as simply human psychology kicks in…. It’s someone else’s problem to deal with not ours!! You can hear them say ”We are here to regulate.. We are not accountants!!!”
    But… simple economics WILL eventually kick in when adviser numbers drop away as their fee increases becomes unsustainable and when someone whether individually or as a consolidated group final does have the balls to take them on through the legal process ( if it is at all possible?). They will run out of money as there will not be enough advisers to generate their fee requirements to fund their needs and at that point (whenever that happens) it will grind to a halt and then someone up there will be forced to take notice.
    Trouble is we don’t know how long that will be or whether something happens before that point… b but as sure as night follows day it will happen one way or the other and things will change.
    It’s up to us to keep the pressure on ..being an adviser is not like military conscription…we are free to leave at any time and if economic pressure becomes so overwhelming advisers will give up the ghost. I was a graduate engineer (a profession which I had studied for) for a large construction company from age 22 to 34 and I was so unhappy and dissatisfied I did something about it..I left and became a financial adviser at age 34. Best move I ever made but now at 64 I have one full time year to go so I have an escape route ahead anyway though I would rather like to keep going… but we shall see.. as will all of us in our own way

  23. One line in Graham’s post above struck a chord with me !

    “being an adviser is not like military conscription…we are free to leave at any time”

    Are we truly “free” as you say at any time ? what if I jacked in now left my FCA bill unpaid I would hounded till the end of days, from the moment I started 24 years ago I have unlimited liability for the advice I have given till the day I die ? “AWOL” if you will !

    Am I free ? do I have my human rights intact ? do I have the protection of the, right of common law ?

    There is a deep embedded darkness within the regulator that grows and is growing for all to see, and its not about, or worried about consumer protection……. why do you think we got rid of the death penalty ? ….. because it no longer and very rarely did protect society, if became a weapon to feed injustice, lynching of the innocent, wrong convictions it never and will never solve the problem ………. hear I give you the F… C…. A !

    So focused, driven, consumed, in the nirvana, that is the protection of the consumer, it no longer see’s the innocent, vulnerable, good, or the damage left in its wake !

    And yes Graham I do agree, these “levies” may have an ending but does this make it right or proper ?

  24. Charles Seymour-Cole 12th August 2015 at 11:21 am

    @ Soren and David. – we are a DA firm and have 3 advisers. Our FSCS levy has just increased from approx. £8500 up to £23,500 and that does not include any up and coming interim levy that might be imposed. That is a 276% increase on last year and is unsustainable. We have joined Libertatum to see if things can be changed. If not then its goodnight Vienna.

  25. @ Charles Seymour-Cole. Many thanks for that – maybe we’re not getting such a poor deal from the Network. I too am in the process of joining Libertatum because I think we are running out of options.

  26. Some really useful posts on this forum, thanks.
    Truth is that the people responsible for the hikes in regulatory fees will not read them. So your best option is to “actually ” do something positive. My advice is that you separate out your firm’s regulatory costs and make them transparently obvious to your clients through your fee structure disclosure. Ultimately it is your clients who will pick up the tab, make then aware of the origin of the costs.

  27. First time Caller!
    I have been an IFA for many years, the last 8 as DA. I am also on my own and seen the regulatory fees, like all above, rising.
    However, what is clear is that these fee increases can not continue or the Financial Conduct Authority will tax us out of existence and then they will have lived up to the true meaning of the FCA – Focused on Consuming Advisers!
    Once completed they will all get golden handshakes, enhanced redundancy payments and/or retire on fat DB pensions and move to the new public sector post of killing the next golden goose…… or am I just getting cynical in my old age?

  28. Firstly I agree with an earlier comment about the huge fines imposed by the regulator going straight to the Treasury. Why does George Osborne pay the hundreds of millions of fines collected to injured soldiers and other completely unrelated charities? Secondly, why is there a situation where we have to pay a levy to fund the FSCS at all? I have never worked in the automotive industry but if a Toyota dealership sells cars with brakes that do not work and that causes accidents, do Ford, Chevrolet, Nissan, Honda, Vauxhall, BMW, Audi dealerships et al then have to pay a levy because of the Toyota dealership’s failure? I just don’t see the logic of the advice industry paying a levy for bad advice given by other non-associated advice firms at all. It’s wrong. The argument is not whether the costs have increased unacceptably, the real argument is why on earth such a levy exists at all? Advisers are distributors or dealers not manufacturers. It is just ridiculous that the FCA can create rules and regulations and levies and fines that bear no relation to natural justice and principals of fairness. PI Insurers are there to protect advisers against successful claims, and where the advice given is unacceptable then the insurer won’t pay out and that firm will go out of business or pay the fines themselves. Surely that is how it should be. The regulator themselves and the regulatory framework within which we are compelled to operate is a bloody joke, and it is directed at us. Get rid of the FCA, protest to your MP, get your clients to write to their MP, protest continually, write articulate letters pointing out this unfairness to the Times, The Mail, The Telegraph and all the other right wing press.

  29. Just received my email saying invoice availbale in the FCA system.

    Absolutley disgusting is all I can say at the moment to the 384.28% increase on my FSCS TAX from last year.

    How they can justify anything like this increase I am staggered.

    The regulators let the bad bunch get away with it and now us Good bunch pay the cost again. So much for regulation protecting the consumer.

    I think it is time to approach my new MP for my area and vent my frustration but of course this will not make any difference one iota.

    I guess as I want to earn some money going forward I am forced to pay the TAX. How is that fair

  30. The whole sorry situation can best be summarised by the previous MM report on Mr Shaw of Tailormade Investments – how much will the FSCS pay out to his victims whilst he gets off with a tiny fine which will not discourage others with similar intentions.

  31. 12k to 26k here !!!!

    On another point…. why do advisers who post have to say they are Chartered and appear to assume they are better than other advisers… just because you are Chartered doesnt mean you cannot give bad advice !! I know of least two chartered advisers involved with Harlequin

  32. I started an on line petition two weeks ago, https://goo.gl/chDA8d
    Despite thousands of views I have 319 signatories. Nothing will change unless we stand up to the bullying tactics of the FCA. Every signature sends a flag to George Osborne, Tracy McDermott and other interested parties. It is time to stop griping and actually DO SOMETHING!!
    PLEASE SIGN THE PETITION TODAY!

  33. Is the FCA a debt collector? The hike in the bill is for FSCS fees and the FCA claims independence as does the FSCS. Pay the FCA, FOS and MAS element and dispute the rest. If the FSCS are independant, it should be for them to enforce the debt. They had the funds to meet this increase, but are acting as debt collectors for the Treasury by trousering fines. I have disputed my bill and heard nothing yet.

  34. gavin bridges-sparkes 21st August 2015 at 2:00 pm

    After 30 odd years in this business I am still naïve. The thing I can never understand is why we get charged for claims on NON ADVISED or UNREGULATED business. Surely the clue is the in the title. Why should the advisor market pick up claims for people who go off and do their own thing. Still unanswered by FOS & FSCS. Caveat Emptor used to be English Law and the country cannot accept the costs of a regulatory system where the buyer can do no wrong whatever their actions.

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