Hargreaves Lansdown founder Peter Hargreaves has lashed out at the Financial Services Compensation Scheme, labelling it “incompetent and daft”.
In an interview with Money Marketing’s sister title Fundweb following yesterday’s results, Hargreaves says the FSCS is poorly run and compensates areas it should not.
He says: “The FSCS is completely incompetent and daft. It is a dustbin for the regulator’s inadequacies. We have said for a long time that it is not run on sensible lines and continues to compensate things it should not go anywhere near.”
Hargreaves, who was speaking after his firm saw its FSCS bill rise 140 per cent to £1.2m for the second half of 2012, says the FSCS should not compensate people who put money in the likes of the Icelandic banks.
He says: “If we had not compensated them the Icelandic banks would have probably paid up, but because the Government did it the Icelandic banks did not bother.
“You cannot have a system where everything is compensated because if you do the stupid people will continue to look to products that give unrealistic returns and invest in them. The compensation scheme will always pay out so the idiots always win.”
Hargreaves maintains those who recommend flawed products should foot the bill.
He says: “The Arch cru debate is a perfect example where I had this open spat with the boss and I actually said anyone at Hargreaves Lansdown who recommends this firm will be subject to instant dismissal.
“Keydata was another example. I would not have them in the office. We wrote to the FSA and said we do not want to deal with them. When a firm says it does not want to deal with them, it should not have to foot the bill. A cab driver could have said you should not invest in the Icelandic banks as it was not safe so how come the regulator did not know?”
An FSCS spokesman says: “We have a duty to compensate consumers when authorised financial services firms fail, under the Financial Services and Markets Act and according to the rules set by the FSA.
“Mr Hargreaves is, of course, entitled to his opinion. His main issue is probably the funding system which we do not set. In that area we strive to provide as much certainty as possible in what is a very volatile environment.”
Yesterday, the FSCS revealed investment advisers are facing a £76m levy for 2013/14, plus an interim levy of £25m for 2012/13.
In its plan and budget for 2013/14, the FSCS provided indicative figures about claim assumptions and levy estimates for the next financial year. The total FSCS levy bill for 2013/14 is likely to reach £311m, down 17 per cent from £265m in 2012/13.
Hargreaves on the impact of the FSA’s ongoing platform consultation rules:
“We remain totally unhappy as it has not been thought through properly. The FSA is doing a rearguard action to make something of it and it will end up a muddle. We’ll have to work with it because they are the regulator. It doesn’t matter to a certain extent because the longer they don’t tell us anything the longer we can continue the same way.”
On the impact of advisers leaving the industry because of RDR:
“It is our belief that we will pick up the lion share of orphan clients. We are already seeing some people who have lost their IFA through retirement or incapacity – namely they have not got the qualifications to continue post-RDR – come to us.
“A lot of people, purely out of lethargy, have not made the move yet but I expect they will as we approach the end of the tax year as they want to make sure their pension contributions are up-to-date or they want to take out an Isa.”
On the need for the RDR and the impact it is having:
“I don’t think there is much wrong with the industry. There will always be commission hunters but I don’t think it was broken anywhere near as badly as people thought.
“If this new RDR-regime is bad for Hargreaves Lansdown, it is a damn sight worse for everyone else. We’re the most profitable game in town, if anyone can afford to make changes and still trade, we can.
“How many people will not be able to trade. Two things happen when you can’t afford to trade, either you leave the industry – which gives us more scope – or they cheat. Making it more difficult to trade actually prompts the crooks.”
On increasing market share:
“We do seem to be increasing market share and when you look at the market place on the whole, the big are getting bigger and the small are going out of business. There is a big shake-up coming at the bottom and that will see the bigger players improve market share.”