“It’s all wrong”. This running joke at our office is based on a regularly occurring statement made by a former financial planner who would often exclaim everything was incorrect with a piece of work. When overreactions and blame are your speciality, it is easy to turn a drama into a crisis.
But as I look at our latest Financial Services Compensation Scheme interim levy and news of a 10 per cent hike in our regulatory fees this year, I risk the mirth of my team as I say for myself, it’s all wrong! Here we are in 2015, and despite a much better regulatory regime than we had before, we are still being stung by foolish advisers recommending inappropriate products to greedy or naïve investors; products which inevitably collapse and leave us picking up the tab for compensation.
I don’t get angry much anymore. In fact, my life view is based around peace, love and forgiveness. Honestly, it is. So I feel a crushing sense of disappointment instead at having to pay another compensation levy and even more towards the running costs of the FCA in the future. It’s all wrong.
I have tried in the past to petition the Government and regulator for reforms to the FSCS funding system. It needs to be based on the concept that the polluter pays, so advisers flogging esoteric schemes which are clearly doomed to fail have to tack on some extra fees. These fees eventually get paid back to the investor when they claim their money back. Seems fair to me.
The little reform we have seen since that petition gathered over 1,000 adviser signatures seems to have resulted in little meaningful change. The main annual levies are based on longer-term funding expectations, but have not prevented an emergency call on our bank accounts. Please, sir, I want some more. The FSCS also still refuses, by choice or stubbornness, to recognise the valuable contribution made by advisers and others to their funding.
Something needs to change and here is what I propose.
First, the rules need to ensure that only authorised and regulated investment funds can be sold by authorised and regulated advisers. None of this Ucis nonsense. It is totally unnecessary for 99.9 per cent of retail investors and anyone who wants or needs to invest in a hotel complex in South America can do without any FSCS protection.
Second, scrap these levies on advisers and instead tack on a product levy, structured so higher risk products attract a higher levy. If this is a leap too far, perhaps the FSCS could adjust its levies so firms selling high risk products (the FCA knows who they are, we all know who they are) pay significantly more towards FSCS funding than the rest of us, who are quite frankly boring about what we recommend to our clients.
Finally, we need a much bigger role for our professional bodies in policing adviser standards. This was a big missed opportunity when the RDR was introduced along with the requirement for statements of professional standing. Professional bodies, along with local champions from the adviser community, could easily enforce self-regulation to identify high risk product sales early and ensure consumers are not placed at risk of ever needing compensation.
What cannot happen is for the status quo to continue. It’s all wrong at the moment. It needs to be put right.
Martin Bamford is managing director at Informed Choice