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IFAs&#39 compensation levy looks set to be £800,000

The IFA sector can expect to pay a levy of about £800,000 towards

Financial Services Compensation Scheme costs in the 2003/2004 financial

year, equating to roughly the same amount paid last year.

The FSCS will have a budget of £12.4m to cover its fixed costs and if

compensation costs are similar to this year – £43.5m – excluding

pension misselling redress, to pay out to consumers. The bulk of the costs

will be met by providers.

In addition to the fixed costs, there is a £350,000 contingency fund

to cover unforseen expenses and £538,000 for the third instalment of

the establishment costs of the scheme in 2001, making the total management

costs of the scheme £13.3m for the next financial year.

The compensation costs are budgeted separately and are considerably more

than the management costs of the scheme. Although the actual costs for this

year are not announced until the next financial year starts, compensation

costs are expected to reach £43.5m by April 5, with £3.2m coming

from the IFA sector before subsidies are taken into account.

IFAs will pay about £320,000 towards the scheme&#39s fixed costs and, if

next year&#39s compensation costs are similar to this year&#39s costs, they will

pay £480,000 towards this bill as they get an 85 per cent subsidy from

providers.

Pensions & Investment Management principle Phil Moore says: “That

amount does not seem at all excessive to me.

“If the maths are correct, that works out to about £25 per adviser. I

think that sounds thoroughly reasonable – let&#39s have more fees in that

range.”

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