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MM leader: New levy is an unacceptable burden on advisers

And so IFAs are left to carry the can for the failings of structured product providers, stockbrokers and regulators.

News that the Financial Services Compensation Scheme is to hit investment intermediaries with a £70m levy to pay for the failings at Keydata,
Pacific Continental and Square Mile does not sound like a fair deal.

Keydata marketed itself as a structured product provider, yet was authorised as an intermediary with the FSA and so advisers, rather than investment providers, must foot the bill.

Stockbroker Pacific Continental went bust early last year, with the FSA stating the firm had a “reckless disregard for standards”. Questions
must be raised as to why the FSA let this company operate for so long when you read through the long list of failings at the firm.

The £70m levy will require the 6,500 investment adviser firms to pay an average of £10,000 per firm within 30 days of receiving the bill. This will
depend on size and certain firms will be hit with much bigger bills.

Added to this, the FSCS says it is likely that the £20m cost of claims for NDFA and Arc Capital & Income will also fall on intermediaries despite the FSA uncovering failing with both providers and advisers.

If this extra £20m does fall on investment advisers, it would break or the first time the £100m ceiling on the levy that advisers can pay, with any excess paid for by the fund management industry.

This overflow mechanism is the welcome result of previous FSCS reform, lobbied for by Aifa and others, to limit the damage done to a particular sector in the event of a big firm going bust.

But surely there is a case to say that the fund management industry should be paying a large share of this £90m bill. As things stand, they
will currently be paying a levy of just £3.5m to the scheme.

Keydata marketed itself as a product provider and was widely seen as such by the industry, yet when it goes bust it is left to advisers to stump up the cash.

Consumers who have been missold financial products by companies which go bust must have a reliable route to recovering a decent proportion of their losses.

But the share of the bill currently being thrust upon advisers is out of proportion with their role in these events.



Sense of direction

Financial Services Skills Council head of careers and higher education Jenny Barber explains how new initiative Directions is aiming to give new finance industry recruits the knowledge they need to make informed career decisions

Business of advice – Complacency is an enemy: Regularly fine tuning your business

DAVID SHELTON, Author of ‘The Business of Advice’, published by Taxbriefs Ltd. Head of IFA Consultancy Service – Scottish Widows There are times when you need to improve the performance of your business without a fundamental re-organisation. Think of your business like a new car: it is designed and built to do a particular job […]


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There are 36 comments at the moment, we would love to hear your opinion too.

  1. I hate to say that this will not be the end of it.
    One day there will be just one firm left to pick up the tab, Mike Fenwick predicted this in 1985.

    All this will all end in tears, not political or regulatory tears because they move on after they create the mess but those of decent advisers who cannot escape the liabilities unfairly apportioned by those in power and who avoided the likes of NDF and Keydata despite the high pressure sales pitch and the ‘recommended’ product listing in network panels.

    I would ask why all advisers have to pay for duff products, the ones who should pay are those who actually sold some of these lousy investments, those who had shares in teh firms and any connected parties to what appears to have been fraud.

  2. This proves beyond any doubt that we need a proper union not one man and his dog with a £5 budget.

    In what other industry could the manufacturer make the retailer responsible for design faults in the product?

  3. Incompetent Regulators Awards Team 18th February 2010 at 1:01 pm

    As I said before on many occasions, the product should be regulated and not the advisers. And of course needless to say by competent people who know the business and not like the current monkeys.

  4. Everybody should refuse to pay this totally unfair levy,unfortunately we all know this will not happen and those that did refuse would be barred from advising leaving those left to pick up the tab.
    This is a totally ludicrous situation with no common sense or sense of justice moral or otherwise being applied.
    I for one am very disillusioned and wonder how much longer the industry as we know it has got left.

  5. FSCS interim levy will put firms out of business!

    The persecution of independent advisers continues unabated! If the retrospective application of RDR level 4, five hundreds hours of degree level study by 2012 and the expected cull of 10,000 independent advisers didn’t do it then the interim £70m levy imposed by the FSCS on advisers to be paid by the end of April, will do!

    I have had many e-mails from fellow IFA’s & some are now saying its time to call it a day as it’s no longer viable to operate as an independent adviser in the face of this regulatory onslaught caused by the very failure of the regulators themselves.

    Just look at the facts – this is an industry to get out of not get into!

  6. I would suggest that all IFA’s challenge this and consider a “class action” against the FSA for all their failures.

    We pay the FSA to supposedly protect the consumer and yet we end up with all the financial burden when it goes wrong so what is the point in paying the FSA if we end up with all the bills for all their mistakes anyway ?

    Keydata was not an IFA failure it was a regulator failure as are stockbroker failures.

    Regulation is a failed system and anyone that thinks it is not must surely be dilusional.

    With costs approaching nearly 1/2 £ Billion this year just for the FSA it is utter madness.

    Banks nearly bankrupt the country and yet still make £Billions in profit yet seem virtually unaccountable for their actions and still reward themselves as if they have done nothing wrong.

    Soon no one will be able to afford to keep “the nutters” in the manner to which they have been accustomed to.

    What has regulation actually improved ?

    Are people better off as a result?

  7. To escape all this, has any considered registering with a different regulatory body (other than the FSA) in another EEA country and then passporting back into the UK. I’ve rang a couple of foreign regulators and they are happy for this to be done and I’ve also called the FSA and spoke to them and they’ve confirmed that we can do this as well. From what I understand what’s really required is for one of the Networks to open an office in one of these countries and then we can all join their network. This will provide proper competition in that you could possibly choose your regulator. It would mean that a decent, fair regulatory regime would grow and a bad one would fail. Networks – it’s over to you!!!

  8. It seems to me that the FSA could retrospectively change the authorisation from an adviser firm to a product provider. Clearly that is what Keydata were and if the FSA misunderstood the nature of what the firm were doing then I think we can be magnanimous and forgive them this once. Just so long as they say” sorry, we made a mistake and will put it right”. They did so with Northern Rock but of course that was a bank!

    On a serious note, if the FSA should have authorised this firm as a product provider they, the FSA, were negligent and cannot expect the wrong sector to pick up the tab. So, does anyone actually know for sure how Keydata ought to have authorised?

  9. To say that the regulator has failed is totally unfair. They are carrying out their remit with more vigour and success than Hitler and The KKK combined. That remit is the obliteration of bank opposition ( IFA’s ) or any other system that works towards client benefit. The exercise of bankrupting us first is just a part of the softening up process.I agree with the comments of Evan Owen ‘this is just the start of it’ if we don’t stand up and take action now it is all over. A mass refusal to bail out yet another regulatory balls up will make them sit up and take notice. They cannot continually bully and persecute IFA’s with total impunity.

  10. Clunk – is that another adviser’s door closing for good?

  11. But does it not give one a perverted sense of pleasure by surviving all the best slings and arrows they can think up and throw at us IFAs.

    Some of the scams they come up with to eradicate IFAs are a credit to Baldrick at his most creative.

  12. This is just so bad now…. The govenment hads helped out the big boys so the small guys have to pay for it. The direcotrs of these companies will set up another company within a few days of its gonig down sometimes from the same address. What are the FSA doing about this for the small guy????? Its is £10,000 then it will mean a pressure on capital adequacy and ability to trade. The idea of a Union is good but do I trust some of these guys who run these outfits ??? Ohh well the last one please turn of the light…..

  13. I believe Fatchett @ Regulatory Legal thinks this is unlawful and worth a challenge via Judicial Review.

    Any takers can contact him on:

  14. Thought they had thought (but hadn't) tank 18th February 2010 at 3:30 pm

    Isn’t it the case that the FSA and FSCS are working together with a target of getting rid of IFA’s and will award themselves banker style bonuses (wonder where they got that idea) once this has been achieved?

  15. Thought they had thought (but hadn't) tank 18th February 2010 at 3:58 pm

    P.S. Good point Man in Black! Before this article appeared I wrote to Gareth Fatchett, suggesting we all club together for a Judicial Review.

    £50 each for every IFA firm should do the trick.

  16. It isn’t paranoia when they’re really out to get you. This is getting just f***king ridiculous.

  17. I had to be the hadbinger of doom but this is just the tip of the iceburg;
    1. The advisery levy for the FSCS overspilling in to the Fund management industry is just one way it works. Don’t forget, the bank bail out was a loan from the Treasury to the FSCS so that the Banking levy did not immedeiately overflow in to the fund managament and adviseory pool. The Treasury loan is interest only (for 5 years I think) and then has to start being paid back at which time teh banking levy IS likely to overflow for all of us. i asked the FSCS and FSA about this when the banking crisis occured, still no answer.
    2. At the same time the FSA sorted out the Treasuries bail out, they brought in a rule that you cannot leave the indsutry without remaining liable for the potential banking FSCS fees. Have a look on the FSA website and you’ll be able to find the link in the end. So going to a different regulaotr might like fine on the face of it until you find they still will come back to you for your share of the banking crash!

  18. Has anyone got any info on registering in another EU country and then passporting back in. Seems like a good idea to me particularly in the light of the current climate.

    As someone said over to you networks.

  19. One Voice. Power in opposing these unfair and draconious sanctions will only happen if we speak as one united voice. Thats Nationals, one man band cottage industry members and Networks. Unfortunately even the one voice has no real power. If the police are unhappy they leave the streets unsafe. If the fire brigade are unhappy our homes can burn. So we all sit up and listen. If we as a united advisory section are unhappy, the implications for Jo Public initially are zero, so the FSA who control our licences know this and exercise their power with inpunity and no fear of reprisal or meaningful opposition. Where is the EU legislation to uphold our equality and human rights on these matters.

  20. Enormous’ FSCS levy looms if mid-sized bank collapses
    Nicole Blackmore | 09-Oct-2008

  21. Where have you been Bill Ward?
    Did you not realise since fsma we do not have any equality or human rights.
    I even wrote to the equalities commission who said this was not a matter for them! We are outcasts not fit to be considered along with the rest of society.
    The FSA can do what it wants anytime it wants and no one can stop it.We really need to get a collective consensus on our opposition to this levy. We may still have to pay in the end but lets not go down without a fight. Join Adviser Alliance or put your hand in your pocket ( if there is anything left in them) and pay for a judicial review as mentioned in earlier posts.We have nothing to lose now that we know for sure we are not suffering from collective paranoia-Julian is right they really are out to exterminate us. Lets give them a run for the money!

  22. Neil F Liversidge 18th February 2010 at 4:45 pm

    When I read this I went into John McEnroe mode. “Mr FSA you cannot be f****n serious!” I’m working 80-odd hours a week to feed the greedy pigs of the FSA’s senior management and I’m left with the crumbs from my own table. How can anybody with any sense of honour preside over such a monumental ballsup and still feel entitled to a six figure salary and a whopping bonus. I despair. The FSA is the Bourbon Monarchy reincarnate. I wonder if I can buy a guillotine on e-bay?

  23. The sad realisation that everyone else is right comes with the regret that we should have seen it sooner. It always seemed reasonable to assume that we were all singing from the same hymn book in a regulated world of fairplay and acting in the spirit of the Act. Whereas none of this is true. Product providers are arrogant with one goal in mind, to sell their product, or rather for the IFA to do so and then after all the sales job is done on the adviser the product provider can sit back and watch it all come in without carrying any responsiblitiy as the buck stops with the IFA. As far as the IFA is concerned the model is untenable at least without a voice and I agree we need an Action Group to lobby, never mind networks squeezing profit and unable to question the fairness of the demands on us but rather making sure we all jump through every hoop that is presented

  24. The FSA and its issue are awash with other peoples money, Just look at the increased Headcount and Payroll and what organisation threatened with closure would contract to spend £80-£160m on IT programmes.

    Yet there appears no positive means of challenge available to the industry and even if there were could a challenge be structured, for greed determined that by reducing the number of ifa’a the more available in the trough for those that remain.

    The FSA has happily seized every opportunity to rerduce the industry to a minimum number of large players, leaving only Banks, Providers and the Stock Market, the later to be freely passed over, to the control of Brussels.

    Remember that the British Goverment gifted the Computer,Jet Engine and £Billions of Technology to other countries, but mainly America.

    So play and pay the price of your dream turned nightmare.

  25. I choked on my cup of tea when I saw the amount I may be expected to pay extra for the FSCS.
    How can a sole practitioner even contemplate paying that sort of money.

    Why should I pay for the gross incompetence of others. Go to the banks. I’m sure they could strip a tiny fraction out of their obscene bonuses and they wouldn’t even notice it – loose change.
    If I’m hit with a big bill, I’m packing it in. I really have had enough.

    When I think of the tens of thousands of pounds I have paid the regulator and the FSCS in the last 15 years, I could weep.
    It’s worse than being tied down in the Venezuelan jungle and being told ‘ the vampire bats are on their way- see you in the morning- if you’re alive to tell the tale’.

  26. …er, so presumably if this levy puts say a hundred firms out of business, there will then be an additional interim levy on the remaining firms to cover the “liabilities” (unpaid levies PLUs future possible claims?) of the recently departed firms, which will itself put say a further 100 firms out of business, which will lead to an additional additional interim levy, which will……..oh you get the gist by now…
    Id love to go back in time and attend the meeting at which this whizzo system was dreamed up…

  27. Is this the only occupation where you have to pay to work? We already have to part with a substancial percentage of our income to pay the greedy FSA etc, the networks and the other bodies we’re made to join. Who’s going to fight for us now? We should all join together and petition the government and MM should make sure this article and the comments reach all the national papers. I for one will be contacting Mr Fatchett. With this size of levy after 30 years in this business I will be finished.

  28. A combination of Money Marketing, Advisors Alliance and dare I say it Aifa (I personally would avoid Fatchett as he is the gamekeeper turned poacher who adised Administrators for the collapsed Network300 and fleeced 47 IFA’s).

    Book a Hotel in London, invite all IFA’s to attend and then lets start to stand united against this.

    If anyone can see another way then tell us on this forum.

  29. Don’t just complain on a message board write to your MP on and also the minister responsible. Just copy and paste your complaint to the minister responsible Sarah McCarthy-Fry.

    We have to make some noise or they will walk all over us.
    For all those out there who sold/ advised on this cr** and feel that it may be a small price to pay. For all those in employed positions who don’t have to pay, for all those who will now decide to give up and leave the industry.Please remember there are just as many of us who never got involved in any of this, who want to stay in the industry and are incandescent with rage at the injustice of it all. Please do something don’t just sit back and take it. We owe it to each other, not to the scu88ags at Keydatd and NDF etc and not to the eejuts at the FSA but to each other.

  30. I am absolutely hacked off with this situation

    I am sure that I speak for a large number of IFA’s

    We avoid the rubbish that was promoted to us through due diligence, qualifications and the net result is we have abill for in excess of £10,000.00.

    This ain’t good enough, if you wanted to antagonistic why not ake the mostr commission do a rubbish job for the client and never see them again

    Were is the incentive to be good and even better.

    Roger Holloway

  31. and yes this is a repeat of my comments on another version of this farce

    I agree with much that has been said above.

    I would love to see an analysis of how much risk and loss the consumer would have suffered over the last 20 years or so compared to the direct and indirect costs of the regulation that is and was designed to prevent and control any such losses. Would it not have all been much easier to have had a product levy. Good firms would still survive and bad ones would fail.

    BUT just picking on a small point in the current farce of paying for someone else’s sins. It is being presented that IFA’s as “”investment firms”” are going to have to pay.

    This is enormously misleading to consumers, press, MP’s and others who might be lead to believe that as “investment firms” we had some role in the invention of these failed products. That as investment firms we were performing the same role as these failed stockbrokers.

    Nothing couild be further from the truth..

  32. Not quite what I said, Evan, but I wouldn’t rule it out.

    1985 – in this very paper, courtesy of Roger Anderson, I said:

    “… The over-riding criteria may be your ability to adhere to a set of subjectively assessed rules, and even more significantly, your ability to absorb the running costs involved in enforcing such rules. Ignore honesty! It may be the rules and costs which prove to be your prison.”

    Thus it has proved to be, and the lower the number of “remaining participants in the relevant market” the higher will be their individual costs, both in regulatory fees and in funding the miscreants.

    Nor is this confined to IFAs – ask any Building Society CEO (and yes, there are less of them), how they feel about bailing out the Banks.

  33. I’m not an IFA so am not directly affected but it seems to me that it is seriously wrong when an IFA who has not sold any products from these companies, indeed in the course of giving his/her clients ‘best advice’ may well have advised against such products, is expected to pay up.

    Are the regulatory authorities in the UK and US going to get Toyota agents to pay for that companies failed products? I don’t think so despite such ‘agents’ being much more closely tied to the provider than any IFA is to financial product providers.

    Going back to the six ‘consumer outcomes’ in the TCF structure, I argued with the FSA at the time they were being brought in that they were attempting to make Mortgage Brokers liable for ‘product and/or service’ failures by the lenders. Jackie Doyle-Price replied that with reference to outcomes ‘advice is more relevant than ………which governs product design.’ I suggested that as this was not what the guidelines said, I could hardly be expected to trust the regulator. Such a shame that I appear to have been proven correct on this one Jackie, but what could one expect when putting forward the view that it is ‘less about what the customer perceives’ as TCF but ‘more about having systems and procedures in place’.

    The FSA systems and attitudes need a complete overhaul. Such a shame that the staff at the FSA only see their time there as a stepping stone to other comfortable sofa’s.

  34. On Thursday Gareth Fatchett of Regulatory Legal wrote to Loretta Mingella of the FSCS requiring detail of the process and diligence of the funding demand. A copy is posted on, Steve Petts’ site. Every IFA with any bollocks should get behind this with both commitment and a little money. This has to be the final straw and we should fight.

    Also write to your MP in the strongest terms possible on

    Oh and sign Neil Liversidges’ petition on the no10 website.

    Whatever you do, make sure it is not the usual apathetic nothing. There are around 28,000 IFAs in this country. At £100 each we should be able to afford to bloody the F-Packs nose.

  35. Many of the comments both in this article, and the many others which relate to Keydata etc – centre principally on questioning the FSA ‘s decision to allocate Keydata’s authorisation as an Intermediary not as a Manager.

    But is it just Paul McMillan, and the other posters who are asking that question?

    It does not seem so.

    This is what the FSCS say, in their Budget Plan for 2010-2011::


    “Keydata and structured products

    We are liaising with the FSA and the respective Administrators to improve our understanding as much as possible about the activities of the firms to determine which Investment sub-class should bear the relevant costs.”

    From here:

    Now it is my understanding (according to the FSA Rules) that the FSCS have to have “reasonable grounds” for imposing a levy.

    Is it “reasonable” if, as they themselves admit, their current understanding of where the levy should be applied is less than 100% clear?

    Given that many posts also criticise the FSA for applying their rules retrospectively – perhaps in this case, just such a retrospective decision by the FSA might be welcome.

    How about it Mr Sants? In your liaison with the FSCS – why not answer the FSCS question and confirm what everyone else knows?

    It is too late now for you to regulate Keydata sufficiently and adequately, thus saving all those involved from the financial losses your failure in regulation produced, but it is not too late for you to correct the failure of incorrectly authorising Keydata as an intermediary and not as a Fund Manager.

    It’s not too late, indeed its never too late to do the right thing, Mr Sants – or is it?

  36. For 2010/11, our assumption is that
    more Keydata Investment Services
    Limited claims are likely to come
    in along with the residual Pacific
    Continental Securities (UK) Limited and
    Square Mile Securities Limited claims.
    Together with other claims, this results
    in a total indicative levy of £19m for
    the Investment Intermediation (SD02)
    sub-class in 2010/11.

    Loretta Minghella
    Chief Executive FSCS in the FSCS Plan and Budget for 2010/11

    But how has the SDO2 sub-class been assembled? Why would firms which do not handle Client Money like IFA’s be classed together in risk terms with firms who are stockbrokers and which do handle client money and so are surely of a different and more risky character. Furthermore, what is the logic or the justification for IFA’s being included in the same sub-class as a product provider such as Key Data Services?
    Who was consulted in the FSCS decisions on which type of firm was to be in SDO2?
    When were these decisions made?
    By whom were they made?
    Is there any forum in which IFAs’ views can be heard and points addressed on the matter of which sub-class the FSCS decides to put IFA’s in?

    I understand from this Budget paper that the FSCS wishes to consult Stakeholders on these matters. I see that in order to do so the FSCS consults its own advisory panel which is said to include representatives from Trade Bodies. Can you tell me please whom the FSCS consulted as representative of IFA’s? I also understand from the Budget paper that the FSCS conducted interviews in order to gather external views. Clearly this statement does not reveal a great deal about the FSCS process, so I would like to see the protocol adopted in determining the scope, number and content of these interviews please, and the report made to the FSCS on these interviews which determined the outcomes set out in the Budget document.

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