Advisers say funding the Financial Services Compensation Scheme has become “unsustainable” after it announced higher than expected compensation costs are set to push up adviser levies by £28m.
In its Outlook newsletter, published last week, the FSCS forecast a £25m interim levy on the investment intermediation class for 2012/13 due to claims relating to the collapse of Pritchard Stockbrokers and spreadbetting firm Worldspreads.
Investment advisers have already been levied £66m this year. The FSCS may also have to pay out on additional claims relating to failed investment brokerage MF Global, Arch cru, and Rockingham Independent. Advisers are likely to be levied a further £3m following the resubmission of tariff data.
Clearwater Financial Planning managing director Duncan Carter says: “The FSCS is a flawed model and is unsustainable.We are being urged by the regulator to have sustainable business models, but how can you plan your costs and charges when seemingly at a whim the FSCS can conjure up an amount that firms have to pay.
“Regulatory costs have uncontrollable, and we cannot just keep getting billed like this, we are not a bottomless pit.”
Jacksons Wealth Management managing director Pete Matthew says: “The FSCS is inequitable and is a broken model. We all expect to pay our share to support the financial system, but there have been too many big failures which lead to massive, unsustainable increases.
“My FSCS bill doubled this year. Fortunately we could absorb it, but we cannot keep absorbing it. The FSCS needs to get its figures right and plan a little bit better so we do not have these big jumps in the levy, but I still think the funding model needs to be completely revisited. It is galling that most of the time this is stuff that advisers were not involved in and yet we are paying for nonetheless.”
Association of Professional Financial Advisers policy director Chris Hannant says a further adviser levy would be a “huge blow”.
He says: “Given the current economic climate advisers are operating within and the effects of the RDR on adviser revenues, this highlights the need to look urgently at how compensation is raised. The regulator must give paramount consideration to what is affordable for advisers, and we urge the FSA to look again at the introduction of a product levy and pre-funding.”