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FSCS boss sees ‘significant issues’ with product levy

Mark-Neale-at-office-in-2014-700.jpgFinancial Services Compensation Scheme chief executive Mark Neale has questioned the viability of a product levy to fund the scheme, citing “significant issues” with the concept.

A review of the FSCS funding model was recommended in the Financial Advice Market Review.

Speaking to Money Marketing after the release of its annual report today, Neale explains: “One of those [issues] is what product are you talking about. Many advisers are talking about unit trusts and Ucis rather than the advice products.

“If you are talking about the advice product you would have to address the question of how easy it would be to place a levy on what is not a homogeneous product.”

Neale adds: “Advice comes in all shapes and sizes, so how would you attach a levy to advice and how would we, in raising the levy, be able to assure ourselves that we would raise the compensation costs we expect.

“There are a lot of issues that would have to worked through. I do myself wonder if it is not easier to levy the advice firms and leave it to them to pass on the levy cost through their sales rather than attempting to attach a levy to the product itself.”

A product levy was deemed out of scope of the review in the first industry roundtable meeting in May, however, organisations including the Personal Finance Society, Apfa, Tenet and Simplybiz are in favour of it being considered.

The FSCS annual report revealed nearly £77m in claims were paid out in relation to Sipp claims in the 12 months to 31 March 2016. The organisation said it continued to see high volumes of Sipp-related claims which was the continuation of trend that started in 2014/15.

Neale says the reclassification of Sipps would be considered as part of the FSCS funding model review.

He says: “The Treasury’s Financial Advice Market Review did recommend that the review of FSCS funding look at different industry sectors in order to reduce the volatility of our levies. That is among things under consideration. That will include the life and pensions intermediation sector under which Sipp advice will fall.”

Asked if he expects the trend of high volumes of Sipp claims to continue into the current year, Neale adds: “I am wary of making forecasts but we do expect there to be continuing Sipp claims in the pipeline.”

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Comments

There are 16 comments at the moment, we would love to hear your opinion too.

  1. He is obviously in the wrong job if all he sees are problems with this(sorry issues). He needs to start finding solutions or a new job! We are not tax collectors.

  2. Richard Clinton Green 13th July 2016 at 4:35 pm

    Only a civil servant would think that the best thing is to pass the cost on to our clients as an extra cost.

  3. Julian Stevens 13th July 2016 at 4:44 pm

    He may well be right. As David Severn has pointed out, any inroads on the FSCS’s skyrocketing levies on the industry in respect of (defective) past advice (primarily, it seems, recommendations towards ultra-high risk unregulated investments) that levies (which, of course, could only apply to new product sales) would take so long to make any noticeable difference as to be hardly worth the effort. It would be like trying to empty a lake with a hand bucket.

    The only solution that I can think of is for the sale of unregulated products to be made subject to a stringent special permissions regime. What do Mr Neale and the powers that be at the FCA think of this?

  4. I wonder how many FSCS pay-outs relate to ‘pure advice’ with no product sale at the moment? I would guess not much more than ‘nil’. Please correct me if I’m wrong though.

    That’s the whole point isn’t it? If an adviser recommends a ‘product’ but doesn’t facilitate it (you know, the all new adviser types) then the product would still have the levy attached if the client proceeded directly with a provider. The levy would be set by the Regulator directly in proportion to the risks associated with the product, which would have been assessed/vetted by the F pack before the launch of the product, if new.

    And then to say ‘I do myself wonder if it is not easier to levy the advice firms and leave it to them to pass on the levy cost through their sales rather than attempting to attach a levy to the product itself’ simply illustrates the problem we face with the whole regulatory and FSCS regime.

    Of course its a lot easier for us (the advising community) to carry the can for the FSCS isn’t it! A lot easier for ‘you’ at the FSCS.

    Interesting to see your impressive salary package there as well Mr Neale. Maybe earning it by doing the less easy route but the fairest one would be slightly more appropriate and may garner some approval from us – you know the parasitic host as we seem to be regarded by your organisation.

  5. You make some really important comments here Mark in highlighting some of the challenges of a product levy however these need to be properly tested in the formal review of the FSCS Funding, not brushed to one side as not worthy of consideration. The grotesque unfairness of the current funding method and its impact on financial advice firms must be addressed and no stone can be left unturned in finding a better and more equitable solution. I urge you to formally accept that a product levy should be considered and I will be more than happy to meet with you and the Review Team to discuss the various aspects and challenges it raises.

  6. or…. ‘We can’t be bothered as the solution for us is already to hand’

  7. Soren Lorenson 13th July 2016 at 6:01 pm

    In order for firms to pass on the levy to our customers we need to be able to know what it is in advance and for it to be easy to calculate. If the FSCS told us that the levy would be 3% of our turnover, we could include it as a transparent addition to our invoices.

    The problem is that we do not know what it is in advance so it comes from our bottom line and hits our profits so it is paid by the advisers and not by the clients.

    Give us a simple percentage of turnover as a levy, defined clearly in advance, with no later unexpected surprises and we’ll be quite happy thanks. For a man on your salary package, that shouldn’t be too hard to organise, and it would be fair.

  8. So how does this product levy work? Two clients with a DB transfer. Both pay us £3,000 to transact as a fee. One involves a fund of £100,000 another £1,000,000. Say levy is 0.1%. One client pays £100 levy the other £1,000 or 33% of our fee!
    The solution is easy. You invoice the client (however you charge) for your initial adviser charge and add 1% or whatever. Yes there are problems e.g. setting the correct level, but it avoids a discussion about why one client pays 10 times what another pays for what is the same thing! It is another form of what happens at present but clearly disclosed and the FCA would like this, the firm has to express in pounds what they have earned from the client and cannot hide behind percentage fees.

  9. Nick Pilkington 13th July 2016 at 6:24 pm

    In essence the FSCS is an insurance provider. All insurance providers charge premiums based on the risk of the individuals or companies covered. If you are deemed high risk you pay a high premium & vice versa. The FSCS is taking the view that you should charge a 17 year old driving a Ferrari the same premium as a 50 yr old with a clean licence driving a Ford Mondeo. This is very nice for the 17 yr old but not for the 50 yr old. The unfairness of this is so obvious & it is difficult to understand why Mark Neale continues to defend the indefensible.

  10. Why on earth are we having to pay PI, AND A FSCS LEVY ?

    Let’s just pay the FSCS and be done with it !

    We have to be honest the PI providers main objective is not to pay out, the FSCS main priority is to pay out at every given opportunity

    Hay you know what ditch the very expensive PI what’s the point in having both ?

  11. As Mr Farage said last week to a group of MEP’s “Well I know most of you have never had a real job!”

    Mr Neale should try running a firm where every day is one of hunting and survival and he would soon change his tune and realise that actually we have ‘significant issues’ with a never ending barrage of invoices that cannot be planned for or budgeted for.

  12. Thomas Frodsham 14th July 2016 at 1:00 am

    What is infinity hic

  13. Mr Neale seems to be advocating that clients paying agreed fees for recieving advice on using regulated products should pay a levy to provide compensation for people not paying fees but buying unregulated commission paying products. It would be interesting if Mr Neale would provided statistics for how much compensation he pays out annually on fee based advice versus commission based advice.

    I’d be interested in seeing how he proposes that the cost of compensation could be passed on to people not paying a fee because their ‘adviser’ is compensated by commission.

  14. OK, keep the current system, introduce additional permissions for regulated advisers to recommend non regulated investments. I do not accept that advice that has not resulted in a product being arranged is causing the issues stated.

    If I took the attitude adopted, most consumers would not be able to gain any advice. There are difficulties, I would suggest that is why you are paid a lot of money, to resolve them. If you have a better idea, one that stops honest advisers and their clients paying for money effectively stolen, then please let us have it. We are all ears!

  15. This runs far deeper in my opinion and is part of a culture that is now hopefully going to end with Brexit. For far to long, unelected organisations have been able to rake in huge amounts of money which they live very well off. Just as with Europe they operate under the pretext of acting for the greater good. They excel in waist and love to take money and give to others.

    I wonder how the general public would react if true transparency existed so they could see that their life assurance policy, mortgage, general insurance would be cheaper if they were not required to fund a totally different area of the market place.

    It is painfully obvious that a product Levy would result in various problems for the FSCS.
    It would mean that non advised sales still got charged, that the levy would actually be identifiable rather than scatterd across

  16. Seems FSCS is taking over from Money Advice Service – see https://protected.fscs.org.uk/news/how-to-improve-your-finances/ Are the levies really supposed to be spent on developing this?

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