While everyone around me appears worried about what their lasagne really contains, once again I have been preoccupied over what the retail pool for the FSCS funding scheme will contain.
You will no doubt be aware of my concerns in 2012 that it would be wrong to expect fund management firms to cover the entire cost of subsidising adviser compensation for mis-sold life, banking and investment products, and not also asking the insurers and banks to contribute.
Therefore, it was with real pleasure that I sent our consultation response to the FSA this month as they have sensibly suggested bringing banks and insurers into the retail pool, ensuring they bear some co-responsibility with fund managers.
The IMA does not, and never has, seen funding the FSCS as an adviser versus manager issue.
We understand and appreciate the work that advisers do to get our funds into the hands of consumers, and in return for that we are happy to step up when advisers are faced with devastating claims. But if fund managers are going to help, then surely banks and insurers should also be willing to take some responsibility for sales of the products they produce?
Bringing them into the FSCS retail pool ensures that they will – and that has to be in the best interest of the industry, advisers and consumers. It provides consumers with a bigger safety net and reduces the burden on advisers in the process.
Although this key principle looks as though it has been accepted and we are confident that PRA firms will now be required to cross-subsidise into the FCA retail pool, there is still room for improvement.
The current proposal is that the contribution levels for PRA firms are calculated according to their notional share of the new FCA’s fees, whilst fund managers are expected to pay on an affordability basis.
So under the new proposals where there is a need to provide subsidy for life insurance intermediary failures, life insurance companies will only be asked to contribute 35 per cent of the amount expected from fund managers. Nevertheless I am encouraged by the FSA’s sensible proposal to bring PRA firms into the pool and that, even if this year the levels remain unequal, we can hope to see further progress in future years.
The IMA would also like to see the adoption of a reserve policy and three year forecasts for the FSCS.
I still believe this would benefit everyone by ensuring there is adequate provision to pay unexpected and exceptional fees. Moreover, it would ensure that firms could prepare for the financial year without having a nasty shock half way through.
We will continue to explore ways in which this might be implemented.
Any day now we should know the conclusions and I am confident that the FSA will ensure the FSCS retail pool has all the right ingredients; which is more than I can say for my dinner.
Guy Sears is director for institutional at the Investment Management Association