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
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