Financial 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.”