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Costs mount again in FSCS levy rethink

Advisers have reacted angrily to the Financial Services Compensation Scheme’s increased 2012/13 levy, which will see investment intermediaries contribute £78m and life and pension intermediaries pay £46m.

Last week, the FSCS confirmed the new figures and also warned both sub-classes could face further additional costs during the year.

In February, the FSCS estimated investment advisers would face a £33m levy and life and pension intermediaries would face an £18m levy in 2012/13 but it has now significantly increased the levies due to the failures of MF Global and Arch Cru.

The FSCS has apportioned 70 per cent of the cost of Arch cru compensation to investment intermediaries and 30 per cent to life and pension intermediaries.

In last week’s Outlook newsletter the FSCS reveals rebates of £35.3m to the fund management sub-class from recoveries from intermediaries who sold Keydata products, mostly Norwich & Peterborough. The intermediary sub-class was rebated £1.9m.

But an estimated £56m of credit notes caused by recalculation of tariffs, mostly due to fund firms, will lead to an overall deficit of around £20m, with £17m levied on fund groups and £3m on intermediaries.

FSCS chief executive Mark Neale says: The increase in levies in some areas follow a thorough review of claims coming in and those we can reasonably expect in 2012/13.

“We shall also do everything we can to offset the costs of compensation for the industry by maximising recoveries from failed businesses and third parties who were also responsible for consumers’ losses. The levy announced today assumes that we shall recover £20.45m in 2012/13.”

Informed Choice last week held a day of action for a fairer FSCS, which received 1,421 signatures in backing.

Aifa policy director Chris Hannant says: “This levy is another blow to advisers who have been hit hard. The figure reinforces the message there are a number of fundamental flaws that leave the current scheme unfit for purpose. Something has gone very wrong with FSCS funding and the onerous burden it has become.”

The IFS Group independent financial adviser Dean Hall says: “The higher FSCS levies will only result in higher costs to clients. Advisers will probably look to move into networks and reduce the services they provide to try to avoid the wrath of the FSCS.”

Forty Two Wealth Management partner Alan Dick says: “The FSCS system is broken and those who are manufacturing the bad products should take greater responsibility rather than advisers, who are being placed under an unfair burden.”

Advisers’ reaction

Hmm…well, if you invite everyone for dinner, don’t be surprised when they show up. All the more reason to sign up for the petition to properly and fairly categorise in the right sub-class. Please sign up.
Dominic Thomas

More of the same and dreadful for all the reasons previously widely documented.
Paul Harding

Enough is enough. We need firm and co-ordinated action to prevent good quality firms from going under due to these massive hikes in costs. Sick of it.

Reading this, I have the same ghastly feeling as someone in a lifeboat holed below the waterline with a great white shark circling.
Chris Miller


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There is one comment at the moment, we would love to hear your opinion too.

  1. Julian Stevens 8th May 2012 at 10:15 am

    The main problems seem to be:-

    1. The FSA failing to prevent these motorway pile-ups occurring in the first place (and refusing to accept any responsibility or being held to account for these failures) and then

    2. Decreeing that somehow or other, because a few recommendations to said providers’ products MAY have been less than 100% watertight, the compensation costs for every provider failure are the responsibility of the intermediary sector.

    Provider failures and (a few) imperfect recommendations on the part of intermediaries are two ENTIRELY SEPARATE issues and it is ABSOLUTELY WRONG for the FSA to intertwine them. It is also absolutely wrong that the FSA is completely immune from challenge as to the fairness of such determination.

    How, in the face of so much evidence to the contrary, Hector Sants can have had the gall to claim that the FSA has no prejudicial agenda against small IFA’s really is beyond the pale.

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