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.