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Compensation crunch

IFAs should brace themselves for another big hit on their pockets from the compensation scheme. This is not what any adviser wants to hear or what Money Marketing wants to be relating to its readers at this time.

The Financial Services Compensation Scheme estimates that the situation can only get worse for this year and next.

Despite a big fee increase which caused a great deal of pain around the intermediary market, it seems that even this has not been enough. A shortfall has been caused by a very high number of cases falling on the scheme.

There is some hope. If the shortfall is between 10 to 25 per cent then the FSCS would look to use its reserves. More than this and is would need another levy.

Pressure will still increase on next year’s levy, with all of this falling on to the IFAs’ payment block.

All of this is bad news – bad news that more endowment claims are falling on the scheme because IFAs are failing and bad news that the FSCS levy may have to rise again, with IFAs some on tight margins asked to stump up more cash.

The system may need to change and change soon or it may break down, that is if it hasn’t already.

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