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FSCS levy hikes are ‘unsustainable’, say advisers

FSCS Interior 480

Advisers say funding the Financial Services Compensation Scheme has become “unsustainable” after it was announced that 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.

This will be the third successive year the investment adviser sub-class got close to or breached its £100m limit. The FSA is consulting on increasing the annual amount the sub-class could pay to £150m.

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.”

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Comments

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

  1. All of which is somewhat starkly at odds with Hector Sants’ claim before the TSC in March last year that “the FSA has no prejudicial agenda against small IFA’s”.

  2. and do the FSA care? Naahhh!!!

  3. What do they do with all the money after fining various banks and other financial bodies?. Does this not go into the pot?

  4. The whole of the industry is at risk due to the regulators trying to remove risk from the process of investing.

    It can’t be done and if they continue to chuck other peoples money at it in the form of compensation to consumers just to try and demonstrate they are doing something there will be nothing left.

    Another ridiculous Labour policy. A political party who believes in a huge money tree at the bottom of the garden.

  5. As another commenter stated, the FSCS is underpinning all retail investing. It’s a recipe for moral hazard. At the very least there needs to be some alignment with the type of business written and the FSCS exposure.

  6. My business and ultimately my clients by way of higher fees cannot continue to fund this outdated levy and why should they pay for the failures of stockbrokers and spread betting firms anyway?

    The whole levy system needs to be overhauled with those in the highest risk catagories paying more – firms like mine with an exemplary track record should be paying lower fees.

  7. If 30% of IFA’s leave over the next 12 months for whatever reason…. There are plenty of them. Will the FSCS levy increase by 30% for the remaining IFA’s,

  8. the more they take from firms to pay compensations the more firms go out of business by not being able to pay leaving the remaining firms to pay more again in an ever increasing circle. The only winners in this are the compensation solicitors who will not be affected as the money goes in thier pockets. Oh hang on Tony blairs wife has a legal firm , aaah thats why

    Any investments has risks, if companies like Arch Cru had not been authorised in the first place then some things may not have occured. As for the FSCS for putting adverts out in the news asking people to complain is just asking for trouble. Just google (Welsh Firms Closed fscs) and go to BBC News

  9. will someone please tell me what a spreadbetting firm as to do with the IFA sector, I hope william hill don’t take a pasting when the grandnational is run that will be the end of all of us !!

  10. Although like many advisers I remain concerned about the increase in FS CS fees I wish money marketing would stop using the multi-million pound increase as a way of scaring advisers as if you divide this by even the number of registered advisers of 50,000 it equates to an increase of £560 pa per an adviser and this does not even take into consideration other professions that fall into this class.

    It’s easy to use figures to scare people although I do wish to see the system that punishes firms with high complaints records and rewards firms that have low complaints.

    I await for the barrage of negative comments that usually come my way.

  11. Peter Herd 10.34. The FSA are in the process of moving charging away from an adviser basis to turnover. They`ve already seen this reduction in IFA numbers coming. There is no escape The Retail Distribution Reduction will go through!

  12. Re Perter, do you have any idea how much the increase is likley to be per adviser & the implications if Advuser numbers do decrease leaving a larger liability for the remainder

  13. If the FSCS is a form of insurance then surely it is time for this to be applied as a percentage or tax for every investor to protect themselves and levied according to risk

  14. @ Peter Herd | 3 Dec 2012 10:34 am

    Peter – I’m going to agree with you. There are so many issues facing IFA’s in the next few months that we don’t need made up ones.

    It would be really helpful as well a good journalism to actually explain the likely cost to the average firm. This would be the real story and it would help us all to judge whether such levies were affordable or not.

    However, it continues to anger me that as an IFA I’m expected to pay for the failure of a spread betting firm and a stockbroker. It’s simply not good enough that we pay a fortune for a regulator and then a fortune for compensation when that regulator fails. But the regulator and its staff seem to be very well paid, have great benefits and pensions and not suffer AT ALL for their continual failures.

  15. Its a cunning plan to protect the public from bad advice – eventually all advisers will have been driven out of business by ever increasing levies – ergo bad advice ceases to exist.

  16. Robert Wanders. I too want to know what happened to the multi million pound fines. After all if these were in the funding pot, surely there might even be a reduction. Are the fines ‘tax’ by the back door?

  17. To Soren

    Thanks at least somebody read my response properly and understood what I was trying to say as it is very easy to use large figures to misrepresent a situation and it would be a very good idea if money marketing would break this down to explain to advisers what the average cost to a firm would be.

    I would also totally agree with you that IFA’s need to either be put in a class of their own or separated from stockbrokers and spread betting firms as it seems to me that we are paying for the mistakes of firms that should be in different classes. I also believe that product providers should be in a different class as well as I don’t see why advisers should be paying for the inadequate solvency levels of providers. Keydata is a good example.

    There is a debate to be had here but instead of throwing stones we need to be constructive otherwise we are in danger of been ignored.

  18. Thanks Peter,

    Agreed. IFA’s have spent most of the last few years arguing with each other rather than putting constructive proposals to the regulator.

    To Money Marketing,

    Could a journalist with a calculator work out what the levy might be per adviser (yes I know its based on turnover so it will be an average). It would also be interesting to work out what the levy will be assuming the reduction in IFA numbers predicted by E&Y.

  19. A reduction in adviser numbers shouldnt have a massive effect as the sector is shared by large multi-national corps who will be paying a lot more than advisers are. You would be deviding a percentage (of IFAs) against a percentage (adviers vs the rest of the industry within the sector). I dont know the actual numbers, sorry.

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