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Neil Liversidge: The immorality of FSCS levies

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Despite the anguished howls generated by the latest Financial Services Compensation Scheme levy, there is a certain reticence when it comes to questioning the moral legitimacy of the scheme itself.

At this point I should make clear my belief that the FSCS should be completely separated from the protection afforded to bank deposits. I refer to the FSCS as it applies to regulated financial advice.

The FSCS is accepted as the price we pay for the privilege of working. Instead of challenging that notion, all the debate is around the scheme’s funding. That is a mistake as it implies an acceptance of the scheme’s moral legitimacy which I do not accept at all.

It is profoundly immoral to raise a completely arbitrary and virtually unlimited levy on honest and competent people running legitimate businesses to pay out the supposed victims of the less honest and competent just because we happen to be in the same line of work.

I accept the FSCS has a certain public relations value. But even then my faith in it diminishes in inverse proportion to the obvious and ever increasing gaming of the scheme by those seeking free money on the one hand, and those holding the purse strings on the other.

The latest development is the FSCS is considering claims against advisers who sold failed tax avoidance schemes. I really do not see why I should pay the tax bills and surcharges levied by HM Revenue & Customs on individuals far richer than I am ever likely to be, simply because they tried and failed to dodge those bills with the help of some idiot. The FSCS however seems delighted to have found another way to spend my money.

Sandringham Financial Partners chief executive Tim Sargisson recently opined that advisers should “stop carping” about the FSCS levy, arguing that “the responsibility lies with all of us” to “win the war against toxic advice”.

Oh really? I absolutely accept my responsibility to run my business, to ensure the honesty and competence of my staff, to advise my clients appropriately and to do everything else the law and professional standards require of me.

But I in no way accept that I should have to fork out when another firm fails. For one thing, I have no control over any firm but my own. For another, even when crooks are reported to the regulator, no timely action is ever taken. Sometimes no action is taken at all.

The answer is to define approved products enjoying FSCS cover. Unapproved products could still be sold subject to the recommendations being given via the client’s solicitor. He would be responsible for ensuring that specific risk warnings were given and received, amongst them one that no FSCS cover would apply.

Reinforce that with criminal sanctions against those promoting schemes illegally, depriving offenders of the protection afforded by the veil of incorporation and making individual advisers personally liable regardless of their employment status, and we would have both better consumer protection and a sustainable FSCS.

When I first proposed this I was told by industry luminaries that it would stifle innovation. I suspect now those same luminaries, as they look at their depleted bottom lines, are wishing a good deal of ‘innovation’ had indeed been stifled.

An open letter to FSCS chief executive Mark Neale

Mr Mark Neale, Chief Executive
Financial Services Compensation Scheme
10th Floor
Beaufort House, 15 St Botolph Street
London EC3A 7QU
11 September 2015

Dear Mr Neale

I’ll start by making clear that this is a personal – albeit open – letter.  I sit on Apfa’s Council but this letter is down to me alone.

You very kindly took time out of your busy schedule to talk to Apfa a few months back.  Whilst I appreciated your efforts, I can’t honestly say you inspired any confidence in me.  The distinct impression I gained was that you look for ways to game the scheme you run so as to pay out as many claimants as possible.  Then I read yesterday that the FSCS is to consider claims by the supposed ‘victims’ of failed tax avoidance schemes.  On reading this I went to the end of our garden and gave the money tree a good shake in the hope that a few tenners or twenties might fall out, but sadly none did.  If you do therefore hand me yet another inflated levy then my clients will need to pay higher fees to fund it.  Do you think that’s okay?  I don’t, but there’s no alternative, because in the real world which I – unlike you – occupy, common sense dictates that money does not grow on trees.  Somebody has to create wealth.  I fully appreciate that wealth creation, like common sense, is probably another alien concept to you, but believe me, wealth creation is the crucially necessary precursor to its redistribution.

So, the tax dodgers: Let’s work our way through the logic here step by step.

1.      Rich and to a certain extent stupid individuals who could afford to pay tax and should have paid it, didn’t want to pay it;

2.      They therefore conspired with other rich but allegedly clever individuals (though that is open to question) and money changed hands to ‘buy’ schemes that would enable them to further their possibly criminal but certainly immoral purpose of tax evasion;

3.      The whole thing fell flat on its face because the Government took steps to prevent what was being attempted – and good for it;

4.      Said would-be tax evaders are now looking at least for a refund of the fees paid to their confederates and no doubt would like to have their tax and penalties paid as well. They have therefore come rattling the can at your door.  In due course you will no doubt come rattling the can at my door. Unlike the Salvation Army however, to which institution I give freely as a deserving cause, you will demand money with menaces, the ‘alternative’ being that I shall be deprived of my living.  So we shall pay. And ultimately my clients will pay. Because the reality of business, Mr Neale, is that ultimately the customer pays for everything.

Let me introduce to you another well-known (but again perhaps not to you) concept Mr Neale; that a cheat should not prosper. If the FSCS pays out these people then it will, by implication, be encouraging tax evasion. How so? Because the next generation of dodgy tax advisers will be able to say to their clients “Buy this scheme! In the best case scenario you pay no tax but in the worst case scenario the mugs who fund the FSCS will pay you out.”

I understand you have taken legal advice as to whether or not you consider these claims.  No doubt that advice itself cost a pretty penny.  Here is a better idea, sadly one which you did not pursue to begin with, but never mind: Tell these claimants to get stuffed.  If they think the FSCS should pay them out then let them go to court to see what they can get.  Hopefully some Judge will be sufficiently smart and moral as to tell them where to get off.

If you are not prepared to do that, and you intend relying instead on the ‘Concentration Camp Guard’s Defence’ of “I’m only doing my job”, then I must point out that contrary to the myths they perpetuated to save their necks after the war, even the men of the SS-Totenkopfverbände could request a transfer to more honourable duties.

The equivalent in your case would simply be to resign.

Neil Liversidge is managing director of West Riding Personal Financial Solutions 

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Comments

There are 21 comments at the moment, we would love to hear your opinion too.

  1. Well said Neil.

  2. A sensible voice which will trail off to nothing; the purse string grippers do not wish to hear it.

  3. I completely agree. The FSCS is just an unfair trading tax that is no longer affordable by advisers and their clients.

  4. All sensible stuff, Neil, but nobody at the FCA or FSCS wants to know. Chris Hannant’s representations to the committee of MP’s involved with the Treasury’s review of the FCA may be our best hope, especially if advisers have to keep raising their fees year after which, of course, will make advice even less accessible to those of more modest means than it already is.

  5. Compliance Thought 21st September 2015 at 1:51 pm

    Good article until the comment about getting the clients solicitor involved. Thats just shifting the compensation from one scheme to another.

  6. Completely agree. The FSCS allows dishonest brokers to get away with impunity knowing that more honest businesses will effectively bail them out. I am a pure insurance broker and have had my annual charges to the FCA/FSCS effectively trebled in anticipation of SIPP misselling – a product which I do not, never have and never will sell. Beggars the question – why was this not picked up in the first place and why am I being punished for it?

  7. Well Neil, you’re the one of the one’s best placed to do something about this…. or at least make such a song and dance people take notice.
    I fear, like most things the odd article here, a letter to your MP there, makes no more of an impression than a soap bubble falling and popping on the floor.

    Many (not only you) will have made comment, written and jumped up and down in the confines of their own office (yes I have done this) when the nett result is only ……………… yep nothing !.

  8. Well said Neil. They don’t care though as they are accountable to no-one.

  9. We need to get some of the big players involved. Firms like SJP and some of the networks should refuse to fund the FSCS. They should give notice that they will no longer support or fund the scheme. A few big firms acting would give the confidence that smaller firms could follow. Those of us in networks currently have no choice.

    The FCA cannot afford to remove the authorisation of big firms because it would (a) hit the news and make them look like the mafia protection racket that they are, (b) be the exact opposite of consumer protectors by fighting honest firms that are refusing to ask their clients to fund the dishonest and (c) leave a huge hole in their accounts and the scheme.

    They would have to act.

    So why are the big firms just rolling over and letting the FSCS take millions of pounds off them. They really do have a choice.

  10. I stopped advising in the investment and pensions market 4 years ago because I no longer wanted to have an unlimited FSCS liability for something that is unconnected to my business.
    There are now fewer firms to pick up the FSCS liabilities and if a few large companies go to the wall owing millions, the implications for those that pick up the tab could seriously effect the viability of their businesses.
    Neil makes an excellent point

  11. Soren L ~ Any firm, however big or small, would (ultimately) be shut down if it refused to pay any levy bills landing on its doormat. I really don’t know why anyone bothers suggesting this as an even remotely viable course of action.

  12. Julian’s right – they’d pick us off. But suppose IFAs, banks and insurance companies ALL agreed not to pay regulatory levies until the system was reformed? If they de-authorised everyone the UK would not have any financial services. Cashpoints would close, pensions would go unpaid and best of all, the FCA would have no money to pay its wages or rent. If enough people are pushed far enough, sooner or later the result is a revolt. Maybe the FCA FSCS and FOS should think about that and start coming up with realistic proposals for change now.

    • Don’t you think its time, then Neil for our trade unions (whichever one individuals subscribes to) to come together and co-ordinate this ?

      And further more do they have the, stomach ?

  13. Neil the point I was making in my blog is the one echoed by Julian Stephens. Simply that there is no appetite for reform among the FCA and the FSCS and at this point we have to accept this. Therefore the probability is the bills will keep coming and the regulators view is to see it as a ‘plague on both your houses’.
    As an industry and collectively we have not paid enough attention to customer outcomes and SIPP companies are undoubtedly finding themselves in the firing line because for some their focus was on SIPP numbers and not enough on the quality of the assets going in. The scramble for new business allowed all manner of toxic stuff to flow in and if the adviser is no longer around and providers provide a robust defence of their due diligence process it falls back on the industry to make good the loss.

  14. The idea of a mass revolt with everyone withholding their levies is nice but totally unrealistic. It’ll never happen. Who would coordinate such a revolt? Who would commit commercial suicide by going first?

  15. Neil (surname withheld in case I misspell it again) is right. No one would possibly take this on and on such febrile grounds. The question of ‘immorality’ can equally be directed at our industry by investors. Specifically people who have lost significant sums due to advice from people and firms with a questionable moral compass when it comes to giving said ‘advice’.

  16. Unless the firms selling these now disallowed and in some cases failed tax avoidance schemes gave investors in them unequivocal assurances that they definitely work or that they couldn’t fail, (both of which seem highly unlikely), I find it difficult to understand on what basis they (the investors) consider they have any grounds for complaint. Surely such schemes were a punt, with no guarantees of anything?

    The same old questions arise:-

    1. Did the PII policies of the firms selling these schemes cover such activities? If not, were they not acting illegally? Isn’t the regulator obliged to police and prevent such activities? Why should the rest of be forced to pay for the failure of schemes and consequently firms that didn’t have adequate PII for what they were doing?

    2. Would they [the firms selling them] not have been required to declare such activities on their periodic RMA Returns to the FSA/FCA? I imagine they would have been. Otherwise, of what use are they?

    3. Why didn’t the regulator pick up on the sale by certain firms of these evidently high risk and speculative schemes and investigate them? This again suggests that the RMA Returns are just another imposition on practitioners that serve no useful regulatory purpose because the regulator doesn’t actually analyse their content. Isn’t the regulator under a legal obligation to do so and therefore head off impending disasters at the pass? Doesn’t the fact that it didn’t do so indicate YET ANOTHER regulatory failure, resulting in more damage to the reputation of the industry (which the regulator is supposedly charged with upholding) and yet more costs heaped onto honest practitioners who would never have recommended such schemes?

    4. Does the regulator not accept a scrap of blame for all this? Seemingly not. It’s a bit like the industrial-scale mis-selling of PPI. What was the regulator doing when all that was going on? It appears to have issued at least some sort of guidelines as to how such products are supposed to have been sold but then FAILED TOTALLY to police those guidelines. The results? More damage to the reputation of the industry and billions of pounds being paid out in compensation, often in respect of specious claims (e.g. on policies on which the policyholders have actually made successful claims) because the institutions concerned don’t have the resources to investigate each and every one, so they’re just paying out shareholders’ money willy-nilly. And the CMC’s are having a field day.

    Is it any wonder that the Treasury is now investigating the FCA and giving the regulators several pretty hard jabs in the back?

  17. Bet you don’t get a reply! I didn’t. There can be no rational answer, as it’s indefensible.

  18. All advisers need PII cover. If these PII providers were responsible there would be no need for the FSCS.

    Furthermore, the PII providers would have an incentive to monitor what each adviser was doing, and any premium hikes would fall on those whose business strategy was the greatest risk.

    Sounds like a win win solution.

  19. I don’t think that PI insurers can be held responsible for refusing to pay claims for classes of business that aren’t covered by the policy they issue. It’s up to the adviser firm to check that they have proper cover for all and any classes of business on which they advise. Again, this raises the question: What purpose do the FCA’s RMA returns serve if, as appears to be the case, nobody checks their content?

    As a member of a network, I’ve never (thank God) had to complete an RMA return but, as far as I know, they don’t include the simple (that word again) question: Does your PII policy cover ALL classes of business on which your firm advises? If the answer is No, the FCA should then intervene IMMEDIATELY to find out exactly what those un-covered classes of business are and put a stop to it. How can that be so difficult?

    It’s a bit like the police not bothering to enforce statutory speed limits, turning up at a motorway pile-up after the event and only then bothering to check which vehicles and drivers don’t have an MoT, insurance or even a valid driver’s licence. There’s be a public outcry and rightly so.

    Leading up to its token rebranding, many MP’s declared in no uncertain terms that the FSA had been “utterly useless”. What’s changed since?

  20. Why have 8 or more comments been excised from the site?

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