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Investment intermediaries hit with £60m FSCS interim levy

The Financial Services Compensation Scheme has announced investment intermediaries face a £60m interim levy.

Fund managers are not facing an interim levy, as the cost of claims will not go above the £100m cross-subsidy limit.

The total compensation costs of the annual and interim levy for investment intermediaries is £82m.

Firms will be sent invoices for their share of the levy by the end of the month, and will have 30 days to pay the invoice or can use existing credit facilities to spread the costs of the levy.

The interim levy relates to the costs of claims for MF Global, Keydata, CF Arch cru and Wills and Co among others. MF Global claims alone are expected to account for almost £27m this year.

The FSCS says it has made more decisions on Keydata claims than previously predicted with a higher average compensation payment than earlier claims. Keydata accounts for £15m out of the total £60m interim levy.

Stockbroker Wills & Co accounts for £9m, and other firm failures account for £2m. Recoveries from Norwich & Peterborough Building Society, which missold Keydata products, reduced the interim levy by £2m. (see table below for investment intermediary levy breakdown)

FSCS chief executive Mark Neale says: “Unfortunately, the value and volume of claims coming to us is highly unpredictable and the costs, as a result, are higher than previously assumed. So, as we advised the industry earlier this year, we have to issue an interim levy to continue meeting our responsibilities.

“We know this will be unwelcome news and sympathise with firms about the unpredictability of compensation costs. We do everything we can to provide as much certainty as possible.”

In December the FSCS estimated investment intermediaries would face an interim levy of at least £40m. It had been concerned the £100m cross-subsidy limit would be breached due to the cost of claims relating to MF Global and Arch cru.

Last month the FSCS announced it would be levying £33m against investment intermediaries for 2012/13.

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Comments

There are 30 comments at the moment, we would love to hear your opinion too.

  1. It is like being a Lloyds name with unlimited liability with none of the upside

  2. Once again those IFA’s who did not get involved in dodgy investments pick up the bill for those that did. This is an outrageous situation that must change

  3. Never sold any of these products. Is this really fair?

  4. So funds go bust but fund managers dont have to stump up – amazing

  5. All of the above & more!!

    As the FSA have already admitted to not doing enough to regulate previously, why can’t they cover this?

  6. Like Hugo never sold any of these policies probably like many other IFA’s.

    And the toad from the FSCS has the gaul to say he sypathies.

    Words dont fail me they are just un-printable !!!

  7. Erm – on that chart why in an ‘interim’ levy is there £9m of management expenses?

    Only £3m was originally budgeted / taken in the first levy?

    That’s some variance from budget ?

  8. Why go after the big boys in the playground when there is a kid with one leg who has some dinner money you can steal! This and the FSCS Levy are the same! COWARDLY BULLYING!

  9. Youre right the IFA who have never sold these products are still in business and are paying these fee’s for the IFA who have gone out of business who have sold them.

  10. Before we get too many posts about ‘never selling’ these – as I understand it 2 of these firms were stockbrokers so it’s nothing to do with fellow IFAs doing the dirty but because we are bracketed with brokers in the investment intermediary class … was it the AIFA who proclaimed their success in getting us this new class some years ago or am I mistaken?

    As for Keydata, no one will convince me that wasn’t a provider but an an intermediary. It won enough awards from money mags for it’s products!

    Lastly some of these FSCS fees might well be to pay for sueing IFA-sellers of Keydata but remember any recoveries go to the fund manager section not investment intermediaries.

  11. Totally agree with Shaun Wood. I have NEVER sold any of these products so why the hell should I have to pay for the mistakes of others?

    Why is it always the advisers that have done nothing wrong that have to pick up the bill?

  12. Also why is an interim levy required for £9m of management fees when the original levy was just for £3m?

    £12m needed when originally they thought just £3m was needed – how come?

    Final Salary pensions needing a top up?

  13. Like the rest of you I have never sold any of the above and have never had a complaint in 16 years but I still must pay for the sins of others.

    Maybe Im wrong but is there any other business like this and yet we just pay up and smile whilst at the same time our revenues are being squeezed

  14. What did they actually sell, as not sure from my initial google search.

    I know I had no dealings with them, so why again do I have to pay for this mess.

  15. Stand united and simply don’t pay.

  16. The reference to CF Arch is interesting given that no compensation has yet been paid by the FSCS. on the 13th March the FSA produced a report about the risks associated with host ACD’s Capita who is the ACD for the CF Arch funds is a host ACD it has billions under management and around £12 million in the bank and that is why IFA’s will be take a bath over CF Arch.

    3.6 Host authorised corporate directors (current issue)
    Many collective investment schemes in the UK are structured as Open Ended Investment
    Companies (OEICs). Typically, investment management firms (investment managers) are the
    sponsors of new OEICs but more recently, some IFAs have also begun to sponsor OEICs
    which they can promote to their client networks. Every OEIC has an Authorised Corporate
    Director (ACD) that operates the fund and is legally responsible for protecting investors’
    interests including overseeing the investment manager.
    When a firm sponsors a new OEIC, it must appoint a company to act as ACD. Until recently,
    sponsoring firms tended to appoint another group company to perform the role of ACD,
    keeping responsibility for regulatory oversight within the same business group. Recently,
    an alternative model emerged under which the firm sponsoring the OEIC appoints an
    independent third party to act as ACD. This independent third party is known as the
    ‘Host ACD’.
    In theory the Host ACD appoints and supervises the investment manager, but the commercial
    reality is that the Host ACD is a service provider to the investment manager (or to the
    IFA sponsor). The resulting conflict of interests may inhibit the Host ACD from providing
    appropriate challenge. Consumers who buy OEICS could suffer detriment if the Host ACD is
    unable to challenge the investment manager. Certain circumstances may increase the risk of
    poor oversight by Host ACDs.
    Many companies acting as Host ACDs are parts of groups which provide other services
    to investment managers. There is a risk that a Host ACD will wrongly perceive that the
    ACD service amounts to another form of outsourced activity undertaken on behalf of the
    investment manager. They may not price the service appropriately to reflect the legal risk
    they face, may not invest sufficiently in systems and controls to guard against those risks

    occurring and may not be adequately capitalised to absorb any losses if poor oversight
    produces significant financial losses to consumers.
    Many of the investment managers used under the Host ACDs model are small, newly
    established firms which lack the systems and controls found in larger and more established
    investment managers. The OEICs managed by these firms often offer strategies with higher
    risks than offered by more traditional OEICs. We are particularly concerned that Host
    ACDs might lack the specialist skills and systems needed to safeguard investors in these
    complex funds.
    As a result, we have increased our supervisory focus on Host ACD firms to ensure they
    understand their responsibilities and are able to meet their obligations.

  17. @ Darren

    We wont !!

    Thats the problem, its not until we all unite under a single banner / force we dont have a leg to stand on.

    But I totally agree with you

  18. Rudolf Schnackenberg 14th March 2012 at 5:01 pm

    2 failed stockbrokers, a failed fund manager, and a failed product provider. What has this got to do with IFAs?

  19. Unbeleivable.
    How can they get away with this.
    The government does not want IFAs!
    Sants, Hoban and all should be ashamed of themselves
    Absolutely incredible!!

  20. Still it could be worse you could be a member of a network and get totally shafted, thats certainly our experience untill we decided to be directly regulated

  21. It is alleged that you can only blame AIFA, allegedly.

  22. The same questions arise as with KeyData:-

    1..If MF Global was a brokerage/intermediary, then all and any client monies would by law have had to be held in a client money account legally ringfenced from the finances of the company itself. Thus, unless MF Global misappropriated money from its client account (which, to the best of my knowledge, it didn’t), then how can its collapse have given rise to any client losses? Or

    2. If MF Global was a provider, in that it was responsible for the actual investment and custodianship of client monies, then how can the costs of its failure be legitimately dumped on intermediaries?

    Neither the FSA or FSCS have deigned to answer these questions. Yet Hector Sants would have us believe that the FSA has no prejudicial agenda against small IFA’s. Its actions suggest otherwise.

  23. Rudolf Schnackenberg 15th March 2012 at 9:24 am

    Those IFAs who pride themselves on never having advised on the recent failed investments do not understand the implications of regulatory action against IFAs who have. Let’s put it simply here for those IFAs who are slow to learn: you are liable for any losses incurred by clients as a result of your advice, whatever the reasons for the losses. Now, who are the IFAs who have never recommended a fund that lost money?

  24. It’s not a matter of whether a client has lost money or not it is down to suitability. If a client has a low appetite for risk then the most suitable product should be recommended. KeyData, Arch Cru…etc were marketed as low risk when the risk strategy was not clearly understood or ignored. Puttling this at the feet of IFA’s is the simple answer for the FSA. If we have the nerve then our simple answer is for us ALL not to pay the interim levy. I think we would stand a better chance of success than the coal miners in the 80’s and our risks are no less.

  25. I think Julian Stevens has made a totally valid point above @ 9.21 and the entire IFA industry should stand together until this questions are answered. These questions NEED answering by the FSA and URGENTLY. Is there nobody out there that can push these points with the FSA? MM? AIFA? Other journalists?

  26. Rudolf Schnackenberg 15th March 2012 at 6:08 pm

    If a client has lost money, it’s high risk…

  27. And that Hoban idiot can’t think of a better way…

  28. Can someone tell me why Professional Indemnity Insurers aren’t coffing up!? Are the respective fallen bodies covered or is there other loopholes!

    Smaller companies are struggling to keep afloat and the FSA & FSCS want more money off us and all we get to say is – Now how much more do you want – despite never selling any faulted plans!

    Where is the breaking point

  29. Unfortunatly, this is a sign of things to come. They want the idea of people seeking (and rightly so), qualified advice. What they also want is a cartel of influential intermediaries, who in no way, or form have any personal, or business relationships with anyone at the FSA. This is because, no one has ever abused their position at the FSA, or any regulator, or suddenly found themselfs in a sweet job after doing their stint at the fundamentally supine authority. Whats that I can smell, erm, it smels, it smells like a herd of conniving, corrupt lickspittles?

  30. Outrageous. Only where advisors have sold the product should the levy apply. This industry is just getting completely out of touch with reality.

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