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FSA: New FSCS claims limit will wipe out 30% of advisers’ profits

FSA director of conduct policy Sheila Nicoll
FSA director of conduct policy Sheila Nicoll

The new £150m Financial Services Compensation Scheme annual claims limit will wipe out around 30 per cent of advisers’ profits if the limit is breached, according to the FSA.

In its latest consultation paper to review the FSCS funding model, following a consultation last July, the FSA today confirmed plans to increase the annual claims limit paid by investment advisers from £100m to £150m with effect from April.

Last July, the regulator said it based the increase to the claims threshold on what advisers could afford, saying reaching the new £150m limit would equate to 25 per cent of advisers’ profits.

The Association of Professional Financial Advisers argued the FSA had failed to properly account for the impact on adviser revenues of the weak economy, the impact of the RDR and falling adviser numbers.

Apfa calculated a 10 per cent drop in revenue would mean the current £100m FSCS limit would take up 25 per cent of firms’ profits, which would rise to 40 per cent if the limit was raised to £150m.

In its consultation today, the FSA says it has since carried out some remodelling which suggests 30 per cent of advisers’ profits would go towards FSCS claims if the £150m limit was reached.

Speaking to Money Marketing following today’s consultation, FSA director of conduct policy Sheila Nicoll says: “We did take account of the RDR in the modelling we did, but we did use very conservative estimates within that modelling. As a result of the representations made to us, including from the likes of Apfa, we did look again at the numbers but do still believe our calculations were valid.

“What we would also say is we have committed to keeping the levels under review. We are not saying there would not be some losses [of adviser firms] as a result of the threshold being reached.”

Many in the industry have advocated moving to a pre-funded method of FSCS funding, perhaps through a product levy. The FSA has consistently maintained it is not within its power to introduce a pre-funded system, saying this is a matter for the Government.

Asked whether the FSA has approached the Government about introducing a pre-funded FSCS, Nicoll says: “The Treasury has been aware of these discussions and debates all along. And I am sure the industry itself will have been talking to the Government on this. We are not a lobbyist.”

The FSA has decided to reconsult on its idea for a Financial Conduct Authority retail pool that would be called upon if one class breaches its annual limit. The system as first proposed would scrap the current provider cross-subsidy when an intermediation class reaches its limit. Following industry opposition the FSA is opening a month long consultation on a new proposal which would see all providers make contributions when the pool is triggered by the failure of an adviser. This would include contributions from banks, insurers and mortgage lenders.

Nicoll says: “The important point is we have listened to the consultation feedback, and we would very much like to hear the industry’s response to this further consultation.”

Pressed on why the FSA did not listen to feedback opposing the increase to the annual claims limit, Nicoll says: “Even when we do not change something that is not to say we have not listened. We appreciate this was always going to be a balancing act. We are very conscious that these circumstances require very fine judgements to be made and require a workable solution.”


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There are 19 comments at the moment, we would love to hear your opinion too.

  1. They’ll get rid of us one way or another!

  2. This is great stuff.

    Reduce the number of advisers in the business to pay the bills, then increase the potential bill by £50m pa for those left standing.

    The economics of that don’t look too bright to me.

  3. The gravey train will run out for all these quangos that are bleeding this industry dry and as more leave the industry the bigger the burden on the remaining….something has to give or come PRA renewal time IFA’s will find the sweat for bread ratio no longer adds up

  4. The question is this: “Is Joe Public any better protected or generally better off since the FSA (and its pre-dececessor – the PIA) came into existence. I know what I think the answer is ! If I am right then the FSA has just added a huge burden of red tape, bureaucracy and cost to the industry (and to the cost of every financial product the public buys), whilst feathering its own nest.
    If I am right, shouldn’t the government be looking closely at removing the whole regulatory edifice ?

  5. So I will still be picking up the tab in respect of advice I did not give, would not have given and advised against. The unavoidable logic of the current system is that if all IFAs except us go out of business then we will have to carry the liability for the whole profession. There has to be something fundamentally wrong with such a system. Sadly the FSA doesn’t seem to recognise that. If you have fewer IFAs then the cost divided between those remaining will be greater. The net result now, more than ever, will be a greater cost to the client. We will take pains to explain to our clients the added cost of regulation so they can judge if it is all worthwhile for them. Consumers need to be made aware of the added cost of regulation to the equation.

  6. “Even when we do not change something that is not to say we have not listened” Classic!
    “We have taken on board……
    how would ms nicoll like to lose 30% of her salary?
    On second thoughts her salary is soooo high she probably would not notice.

  7. I am not a betting man but with a fundamentally unsound UK economy, it is almost certain that the £150M ‘limit’ will be breached.

    So, advisers, kiss goodbye to ‘whatever’ percentage of your profits.

    Coupled with the lack of a ‘long-stop’, one might be tempted to think that the FSA/FCA/FSCS bureaucracy is out to destroy you.

    Of course, they are not, it is simply the case that they have no incentive to save you … which is nearly always the case with bureaucracies.

    They are primarily motivated to expand their empires and to accumulate power.

    Financial services in the UK are slowly being choked to death by these various bureaucracies.

  8. Looks like sh*t, smells like sh*t, most probably is sh*t!
    This muppet Nicoll and her cronies at Canary Wharf are happy to let Capita negotiate a settlement for the Arch Cru debacle before the extent of their negligence is established and then decide not to fine them £4m because it might cause them financial difficulties, yet they are willing and obviously happy for a compension scheme not fit for purpose to cost 30% of a compulsory contributor company’s profits,with the likelihood that this will drop many good, innocent companies over the cliff!
    The FSA and whatever else it mutates into is a complete joke.
    Let’s all agree not to pay our fees!!
    Vive la revolution…

  9. Is this figure based on the average profit for an IFA firm? Iif so, how much is it?

  10. Because I have only ever sold/advised on products and services which do not try to be somehing they are not, and could not be described in any way as ‘too bloody clever’, and because I have always listened to the client, and been open and honest, and because the FSA and it’s predecessors could never see that it WAS and IS their role to police and monitor what is put on the market, I have never had a complaint about the advice I have given, and do not anticipate ever having one, and yet…..

    I, and most of the rest of us, have to reach in our pockets to bail out the ‘clients’ or victims of a bunch of morons whose greed and stupidity, aided by the FSA’s failings, ducking their responsibility, leads to the sort of ‘failures’ we’ve had over the last few years.

    A plague on all of them! What a Wunch of Bankers!

  11. Methinks it is time for the relentessly upbeat Dennis ‘Yellowtail’ Hall to come along and explain why this is truly wonderful and how handing over 30% of his companies profits to the FOS is not a problem at all.

    Come on Dennis, bite the bullet!

    Or alternatively, maybe Harry the Katz would like to have go.

  12. What profit is left after regulatory fee’s, exams to gain Diploma and the FSA christmas party?

  13. what about scrapping the FSA FCA etc etc and all their costs could be used to fund the bill with any surplus being returned to advisors or invested into cpd for advisors. how many tens if not hundreds of millions have customers had to pay to fund the regulators long lists of failings, you couldnt make it up its so daft.

  14. “we have listened to the consultation feedback, and we would very much like to hear the industry’s response to this further consultation.” But,

    “As a result of the representations made to us, including from the likes of Apfa, we did look again at the numbers but still believe our calculations were valid.”

    Both of which, together, may be summarised as Listened to but, as usual, decided to ignore the representations made. Those who disagree with us can just get lost and there’s nothing you can do about it. And,

    “The FSA has consistently maintained it is not within its power to introduce a pre-funded system, saying this is a matter for the Government.”

    But doesn’t the FSA claim consistently that it’s independent of the government? The FSA seems to be independent when it suits but, when it doesn’t, certain issues are described as being matters for the government.

    Some things never seem to change, most of all the FSA’s claims to be in any way accountable.

  15. Nicoll says: “We are not a lobbyist.”

    We is obviously not bound by English grammar either!

  16. The FSA is determined to see adviser numbers fall. This is a risk management strategy pure and simple!!! If you force the public to make buying decisions themselves by restricting access to advice or removing advisers from the market, then the risk of a claim for bad advice (PPI etc) is eliminated. Soon the public will be left to deal directly with the banks, or they’ll have to trust these so called ‘information only’ sites like MoneySavingExpert that have been operating under the FSA radar for years.

  17. Stop paying your fees.!
    It would be a mass adviser industry vote of no confidence and it would force fSA into accountability.
    No words will make any difference – direct action IS the answer.

  18. After you Scott……

    Whats the definition of stupidity?

    Expecting IFA’s to do anything as a coherent group. Far too much self interest in this industry sadly.

  19. PPI was usually non advised…
    i didnone

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