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Hornbuckle Mitchell may pass costs of FSCS levy on to clients

Hornbuckle Mitchell director Mary Stewart admits the firm could be forced to pass on its £375,000 Financial Services Compensation Scheme interim levy to customers.

The Sipp provider, which saw its levy rocket from just £6,000 last year, is considering writing to its 14,000 Sipp clients to warn they could have to foot the bill.

Stewart says: “We are looking at all options at the moment. It was a huge shock and a bitter pill to swallow because we have not done anything wrong. We have to consider passing on the cost to our customers. The problem is that we do not know what the next levy will be, so if we decide to absorb this we will set a precedent.”

In February, James Hay wrote to customers, warning that it may have to pass the cost of its £938,000 levy on to consumers.

Chief executive Tim Sargisson says the company has now decided to absorb the costs following confirmation that the investment fund management sub-class liability is capped at £300m.

He says: “Our concern was that everything above the IFA sector’s £100m cap would spill over to the fund management sub-class. It is now clear we do not have an open-ended financial liability, so we can absorb the levy as a business expense.”

Suffolk Life, Hargreaves Lansdown and AJ Bell will also write off their FSCS payments as a business expense.

James Hay says the interim levy is based on a charge of around £250 per £10,000 of annual eligible income for the investment intermediary sub-class and £348 per £10,000 of annual eligible income for the investment fund management sub-class.

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Fraser Brydon - IFA 10th March 2011 at 10:31 am

    This has to stop and stop now, it’s a double whammy for me as an IFA and a SIPP investor. Nothing against Hornbuckle Mitchell who hold my active SIPP, but as an IFA I have to suffer a levy, the second in a year, a levy for each of my IFA employees, and then a potential further levy from my SIPP provider. Ican’t keep passing the costs on.

    To extend the thought, Hornbuckle Mitchell are not shouldering their share of this very unfair levy, why should i have to pay again, if i was a further investor with James Hay i’d be asked to pay again. A levy is a levy pay it and get on with it. If I am asked to pay again i’ll think very hard about moving my business and take all existiing business away, is this another area to cover in my suitability letter, potential claim…….oh i’m tired of it all.

  2. Frankly, SIPP providers need to make their decision and run with it.

    IFAs and clients enjoy forgetting that the FSCS levy is for THEIR protection, and provides no benefit to the providers. Had they been KeyData clients or similar, I’m sure they would be chomping at the bit to claim their chunk of the levy.

    As soon as the majority of IFAs and clients can see past the end of their own nose, the sooner this will stop being such an issue.

  3. potential client - madness 10th March 2011 at 12:55 pm

    So how does my IFA recommend to me a SIPP contract that has an unlimited unknown charging structure? it might well be fee bsaed and RDR transparent, but if its unlimited in the fact that a SIPP provider will aportion an unknown % of their levy to my SIPP every year (potentially) – Why would I buy that? how can the IFA justfiy recommending that?

    I guess it makes the IFA’s due diligence for providers nice and easy.

    Well done FSCS you have just shutdown the boutique/nich SIPP provider by closing their distribution channel.

  4. Mary is just afraid if hornbuckles pay the levy it will come straight out of her magnificent marketing budget, then were will be all be with no rolling banner adverts and weekly spam emails……

  5. It’s one of those difficult situations where the current system seems unfair but it’s hard to think how it could conceivably be changed to ensure fairness. In reality, a system that punishes those who run their business responsibly when others that have taken a different approach fold seems unfair. If I ran a company in financial services and like James Hay, was asked to wipe £1m off my bottom line, I’d be frustrated. SIPP providers do not choose what to put in SIPPs, the clients and their advisers make the investment decisions. The SIPP providers just administer the scheme. I guess it begs the questions, who should pay? For me, rationality says the client so I think it’s fair to pass it on. I appreciate that being asked to pay is an emotive issue. True, like the institutions, if a client didn’t invest in Keydata for instance it seems equally as unfair. But what is the FSCS? It’s basically a nationwide insurance scheme on financial products. Is paying towards the recent levy a reasonable price to pay for the security of knowing that if any investments that you do have that go to the wall, you may get all or part of your money back.

  6. The FSA et al have a bee in their bonnet about charges.

    And yet a client could be charged three times by the FSCS interem levy
    1. The underlying investment
    2. The IFA
    3. The SIPP provider

    Scandalous

  7. And so they should.
    Charges need to be clear, fair and not misleading.
    The client should know exactly what they are paying for.
    Then they might wake up to the fact that the regulator is a waste of space and money.

  8. The reality is that apportioning the £375k across the 14,000 clients will cost each client a fraction over £25, which is actually very little. A point that has seemingly been overlooked by HM.

    So, I really have to question the logic of a company trying to upset the very people it relies on to run its business. A very bizarre statement to issue when a little more thought could have made it far less negative.

    I think some people assume that no press is bad press … I think not.

  9. in response to the comments

    Anonymous | 10 Mar 2011 2:39 pm
    “SIPP providers do not choose what to put in SIPPs, the clients and their advisers make the investment decisions. The SIPP providers just administer the scheme. ”

    Actually you need to go away and read the 2010 fsa thematic review on sipp operators, according to the fsa sipp provider’s have a duty of care over the investments. Perhaps the issue here is sipp providers traditionally working to a mantra of “if its hmrc allowable we allow it” isn’t a prudent approach in the 21st century of sipp operators.

    In reply to Anonymous | 11 Mar 2011 9:48 “cost each client a fraction over £25”
    Excellent!, thats per anum for the length of the contract.
    Why should HM ssas clients pay for what is effectively a sipp levy?
    if we look at the industry average annual costs of running a sipp at £500pa you have just added 5% to the annual costs.- I am sure the IFA’s compliance dept will like that without more paperwork being needed.

  10. A few points to “defend” my post …

    Firstly I did not defend any decision to pass the levy onto clients – I merely pointed out that had the actual amount been highlighted, the decision might not have looked so dramatic. In other words, why did HM not think about the message they were trying to get across.

    Secondly, the article does state that it would be passed on to the “14,000 SIPP clients”. That means that HM SSAS clients will not pay,

    But I stress that I was not passing comment on their decision to pass on the levy.

  11. This is absolutely disgraceful. Hornbuckle Mitchell should manage their costs better. Other SIPP providers including James Hay (one of the largest and longest established) are not passing this cost on to SIPP members. I’m pretty sure other SIPP providers will not be as short sighted as to think that this acceptable behaviour. This is at best opportunism to help them with THEIR business costs and its the IFAs and their clients with Hornbuckle SIPPs who will suffer. Thank you very much Hornbuckle.

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