View more on these topics

MPs warned FSCS costs impeding advice investment

UK-London-Parliament-Big-Ben-700x450.jpg

Advice firms are unable to invest in services to support customers in the wake of the introduction of pension freedoms because of the burden of FSCS levies, Apfa warns.

In its submission to the Work and Pensions select committee’s enquiry into the availability and affordability of financial advice, the trade body warns of the impact of the rising cost of regulation on the sector.

To illustrate the point it compares the total FSCS levies for the sector – £216m – to retained profits of £171m for 2014.

It says: “If the levies continue at this level, there is no capacity for firms to invest in the future.”

Apfa has also told the committee providers are seeing more enquiries than advisers in the wake of the new retirement freedoms and called for better sign-posting from Pension Wise.

It says while many advisers have seen an increase in interest from customers, it was exceeded by the numbers contacting providers directly.

The trade body says 87 per cent per cent of advisers have seen new business enquiries increase in the aftermath of pension freedom, but the average number of enquiries received was just eight.

Based on an approximate adviser population of 23,000 firms, Apfa estimates that the total sum of enquiries received since April is 150,000.

Apfa says: “To provide some context, in the early weeks, pension providers were receiving 200,000 calls a week, and the FCA reported that by the start of July, 60,000 had taken advantage of the new freedom.”

As a result, the trade body argues Pension Wise must do more to signpost the services of the sector.

“The take up of Pension Wise is reported as relatively low. We believe it needs to be given more prominence in communications from pension providers and the service itself needs to better explain the benefits of taking financial advice.

“Where the cost of the service is obviously a barrier to take up, it is important for prospective clients to understand that a conversation with a financial adviser costs them nothing until they have agreed a fee.”

However, Apfa also admits some advisers are wary of picking up clients keen to immediately access their funds, or transferring from a defined benefit to defined contribution scheme.

According to a study conducted by the trade body, 55 per cent of advisers have had requests to transfer from DB to DC, with many also reporting clients calling up to request “a letter” with no interest in actually taking advice.

In such cases, Apfa says more certainty must be given by both the FCA and the Financial Ombudsman Service.

It says: “In our view, in such cases, a client going against a financial adviser’s recommendation is likely to be common and the FCA and FOS should be clear that there is no risk in assisting a client in such circumstances.”

The committee is taking written evidence from interested parties until the close of 28 August.

Recommended

3

Apfa launches second ‘cost of regulation’ survey

Apfa has launched its second “cost of regulation” survey as the Government prepares to investigate the operation of the advice market. The survey aims to record both direct and indirect costs on Apfa members. Last year’s study found that smaller firms were spending on average 12 per cent of their income on compliance and regulation, […]

6

Apfa: FCA is fighting a losing battle on client comms

Last month, the FCA published a discussion paper on smarter consumer communications, complete with an interactive page on its website and several examples of what it considers to be best practice. The paper states, quite reasonably, that information can “overwhelm, confuse, distract or even deter people from making effective choices”, using behavioural economics to explain […]

MPs slam ‘miserable’ Govt response to pensions report

Work and Pensions select committee chair Frank Field has condemned the Government’s response to its report on automatic enrolment. In March the committee, then chaired by Dame Anne Begg, issued a raft of recommendations following a review of auto-enrolment and the broader pension reforms. Begg’s committee called for an increase in the age at which […]

1

Advisers urge MPs to lay bare regulatory costs

Advisers want to see MPs shine a light on the performance of Pension Wise and the cost of regulation as part an inquiry into pension guidance and advice. Last week, Money Marketing revealed the Work and Pensions committee is to probe the quality of the Pension Wise service and the availability and affordability of retirement advice. In […]

Harris Associates' view on the UK’s vote to leave the EU

By David Herro, Partner, Deputy Chairman, Portfolio Manager and Chief Investment Officer of International Equity at Harris Associates Britain’s vote to exit the European Union has led to significant uncertainty across global markets. We believe market impact of this uncertainty, though severe, is more of a shorter-term phenomenon which will provide an opportunity for long-term […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Douglas Baillie 28th August 2015 at 3:41 pm

    It is not just the huge costs of the FSCS levies. The recent massive increase and proliferation of so called Claims Management Companies (CMCs) and one particular legal firm has led to a significant increase in vexatious, meritless and disingenuous claims for compensation being sent to beleaguered financial advisers, who spend a lot of resources dealing with them, and then the CMCs who routinely ignore the responses and simply forward these on to the FOS as a ‘clearing house’ who appear to be institutionally biased in favour of the complainant. This in turn results in a greater liability falling on PI Insurers (resulting in higher premiums), and then on to the FSCS.
    The root cause is poor regulation and multiple
    Retrospective interpretations of the FCA rules, COBS, Perimiter Guidance and Miffid. This is a viscous circle of bad regulation and unaccountable government agencies who perpetuate their own existence by passing on liability and costs to the advisers.

  2. The FSCS is very similar to Lloyds names.

  3. There is another side to this: I made a conscious business decision 2011/12 not only to prepare for RDR and its implications but also the rising costs of levies and fees. This entailed, telling my advisory staff there will be no position for them post 2012, and making all my support staff redundant, and closing the office !

    Now the other important part to this (which you may find quite bizarre) was to reduce my income (company revenue) down to under £100k this also meant shedding clients, and in the main sand bagging (evening out) investments to ensure I keep under the £100k at times of FCA reporting ! this ensures the fees I do pay are kept to a minimum !

    Its is sad, don’t you think ? that being a good employer, with good healthy profits and having a successful business, is penalized so heavily in this industry ! so much so, that one has to get rid of staff, reduce income streams and work from home to accommodate our regulatory burden & costs !

    So Mr Hannant, maybe (if like me) adviser businesses don’t want to earn more money by doing more investments, because the flip side is the extra work and effort just means more cost and levies !!

    Now that is a double edged sword !!

Leave a comment