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FSCS boss: Extra levies ‘price we pay for greater choice’

Neale speaking at MM In Focus

Financial Services Compensation Scheme chief executive Mark Neale has come to the defence of IFAs’ recommendations, but warns that supplementary levies for the lifeboat fund will be required as long as consumers are allowed to choose high-risk products from bad advisers.

In his latest blog, Neale reflects on a session on the pension freedoms at a recent Money Marketing conference.

He notes that since the freedoms, fears that consumers would immediately spend their whole pot have rarely materialised.

Neale writes: “People are not, for the most part, acting imprudently. Many do seek professional advice about the investment of their retirement savings. The great majority of regulated financial advisers give conscientious and good advice.”

However, Neale notes the importance of the FSCS backstop when advice does go wrong.

“It is very important that consumers understand that FSCS does not protect them against ordinary investment risk knowingly taken on. But, equally, there is a risk that investors will be deterred from seeking independent financial advice if unaware that FSCS will protect them against mis-selling in the event that a regulated advisor fails.

“Choice does, inevitably, carry risk and even in a well-regulated market people will occasionally be mis-advised to make imprudent investments. That is why FSCS protection needs to be there.”

Neale says that the recent growth in Sipp related claims from advice to transfer into risky and illiquid assets like storage pods and tropical forestry, exemplified the importance of that protection.

Last week, the FSCS announced it would have to levy a supplementary £24m for such claims. Breaching the limit for life and pensions advisers, the bill will have to paid by other parts of the industry that serve retail clients.

Neale writes: “This is not, I acknowledge, especially palatable news, but it is the price we pay for greater choice.  Choice gives welcome flexibility to invest retirement savings in ways which reflect consumers’ risk appetite and preferred life style.  Those choices are mostly exercised prudently.  But we do need to protect consumers, who cannot readily replace their retirement savings, against occasional examples of bad professional advice.

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. “We pay” he says…. It’s a bit of a pantomine I know, but you do have to say “Oh no he doesn’t.”
    Mr Neale is PAID to sort out these mistakes, with his salary coming from OUR levies, which we raise from our clients fees and the levy pays for this “choice”.
    This is all due to failures of the FSA (Now known as the FCA) as nearly all of the excess levy fees are in respect of crud sold through SIPPs which many of us have been warning about for mroe than a decade.

  2. Hmmm, what does he mean by consumers being “allowed to choose high-risk products from bad advisers”? High risk products are sold, not chosen.

    As a diversifier within large portfolios, some UCIS for some clients are appropriate. Banning the sale of all of them is not the answer.

    It’s the responsibility of the FCA to identify, home in on and put a stop to the relatively small number of (regulated) advisers selling toxic junk. In this regard, not only has it so far failed spectacularly but it doesn’t even have the integrity to admit it.

    • I mostly agree but I would ban the sale of UCIS to retail clients. I accept that it may give a little extra diversification for the rich but the cost is simply too high. I have considered, but never recommended, them to our clients and have been very glad that I haven’t!

      Sadly, a ban is unlikely. It would go against the apparent ethos of a regulator which appears content to give guidance rather than instruction. More’s the pity.

  3. It is a choice for some: those who may seek very high rates of return, those who invest in unregulated investments, those who truly believe that property in Cape Verde is a good idea. There is no choice for those investors who follow prudent, perhaps boring routes and who have to subsidise them. Choice for some at the expense of the majority.

  4. The FSCS picks up the tab for firms who are unable to meet their liabilities for compensation claims and then makes recovery from the adviser community at large. We must ensure therefore these claims are correctly assessed given their redistributive effect.
    It follows therefore that there must be greater accountability of FOS decisions
    and I do not see this issue on the agenda of anyone other than Libertatem. Why not?

  5. I think the point is that there is no fairness in penalising those who do not make such recommendations, or their clients, to subsidise those that do.

    FSCS has been all too ready to declare errant firms to be ‘in default’ without seemingly carrying out proper analysis of such firms accounts and assets.

    The owners of these firms just shut up shop and start again and the levies just roll on.

    As for choice, whose choice is it anyway? Not mine that’s for sure!

    • The fundamental principle of insurance is that the levies on (premiums paid by) the many cover the sins (losses) of the few and the FSCS is an insurance fund.

      The injustice against those of us who aren’t responsible for the liabilities arising from the mis-sale of failed junk products arises from the failure of the FCA to do its job properly. This is firstly because it doesn’t bother to check whether firms selling this stuff hold relevant PII cover (and doesn’t even seem to be bothered about it) and secondly because it makes no effort to identify and home in on those doing so (though now, long after the horses have bolted, it says it now plans to start doing so). Quite how such manifest laxity is supposed to accord with its claim (on its website) to enhance market integrity it hasn’t sought to explain, probably because it plainly doesn’t. References to the initials FCA standing for the Failed Conduct Authority surely confirm the old adage of many a true word spoken in jest.

  6. oh well Mr Neale here i go again with a bill for my clients ( yest Mr Neale it is my clients that pay this extra cash for you and the rotten FSCS)just received the latest FSCS bill thanks very much get 2018 of on a positive

  7. Genuine question here. Which other professions/services/industries have a levy like this where other advisers/salespeople pay into a scheme to pay out for bad advice? Do accountants and lawyers pay into a central levy? Or any other professions other than financial advisers?

  8. Perhaps the best way of addressing this is to simply re-charge the clients. In the end they pay anyway and in the spirit of transparency, which the FCA have long championed, it makes sense. It might focus minds at the regulator, FSCS, FOS if they see the charge going to direct to clients.

  9. I’ll repeat a previous post.

    FSCS pays contractors to do its investigations. These contractors have their own limited companies, are contracted to an agency which in turn is contracted to a big 4 firm. The contractor will earn around £260 a day, QA more and various, superfluous, project managers even more. Everyone gets their cut, so what is actually being paid to the big four firm per person per day?
    Moreover, FSCS is scared to reject any complaints whatsoever, and if a complaint IS rejected and then challenged, it will find a way to pay out. It has no qualms about paying out on these SIPP claims even where the consumer concerned was CF30 at point of sale.
    And we wonder why the levies have gone up!

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