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Pimfa calls for DFMs to be exempt from FSCS levy

FSCS-Piggy-Bank-500x320.jpgNewly-merged adviser trade body Pimfa is calling for the FCA to change how it plans to calculate the Financial Services Compensation Scheme levy, to take discretionary fund managers out of its remit.

The FCA’s consultation on FSCS funding reform said all firms falling under its investment provision funding group are classiffied as product providers and so will be required to contribute to the levy in future.

However, Pimfa, the trade body borne out of the merger between Apfa and the Wealth Management Association, points out that, despite falling into the same class, DFMs are not product providers and should be exempt from the levy.

In its feedback sent to the FCA on 15 January, Pimfa regulation director Ian Cornwall says the FCA assumes discretionary businesses usually comes from referrals from advisers, which is not always the case.

Cornwall says Pimfa is supportive of the planned 25 per cent contribution product providers will make towards the FSCS, but urges the FCA to modify the “flawed” proposals that mistakenly categorise DFMs as product providers.

He says it is “wrong and unfair” to put non-product manufacturers in the levy class for the purposes of the FSCS and that the FCA can easily identify which firms are receiving income from clients on a discretionary basis.

The latest on the FSCS funding review

Speaking to Money Marketing, Cornwall says: “At the moment the FCA captures all firms within the investment provision class regardless of whether they are product manufacturers. We support [the FCA] proposals but we don’t support the way they have done the engineering as firms that provide discretionary services to retail clients are not product manufacturers.”

The FCA’s consultation on its proposals for FSCS funding review closes on 30 January.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Given Andrew Neale’s recent revelation that 80% of all liabilities taken on by the FSCS are in respect of failed investment schemes marketed by unregulated/unauthorised providers who, by definition, pay no regulatory levies, I see neither logic or fairness in the FCA’s proposal that providers which ARE authorised should pay any share of the FSCS bill. They aren’t responsible for the problem. The only sensible solutions, as proposed by the PFS but apparently ignored by the FCA, are:-

    1. the imposition of a transaction tax on all UCIS and

    2. Higher levies on regulated intermediary firms selling them.

    Why would such measures be difficult to enact?

  2. More importantly: when confronted with an issue that affects the 80% of their members who are Wealth Managers

    PIMFA elects to support the majority of its members even if it compromises its 20% advisers.

    As regulation concentrates on cost you will see this trend continue.

    Advisers you need your own association

  3. I am not sure from this article if DFMs want complete exemption from the levy. If this is the case this completely unacceptable. In any event most DFMs are product providers as the majority of them have a Model Portfolio Service that they compile, market and administer, this in anyone’s book is a investment product. This is not the 1970’s or 80, the DFMs need step out of their ivory towers and realise that regulation also applies to them. I know this may come as a shock to some of the gentlemen that run these DFMs, but they need to accept they have had it too good for too long and their gravy train has finally hit the buffers

    • Interesting point on model portfolios. By definition they must represent a service (not a product) or be an Alternative Investment Fund (AIF, a product). The working assumption of DFMs offering these has always been that they are the former.

      Where a portfolio is bespoke to the client or modelling techniques are used to construct them it’s clearly a service. However, where it’s a standard portfolio across clients, and particularly where the DFM doesn’t even know the name of the clients it’s managing for, then the rules and guidance on the definition of an AIF make for uncomfortable reading. If it looks like an AIF, walks like an AIF and quacks like an AIF…

      The only surprise is that the FCA haven’t looked at this more closely or there has been a media story about it.

  4. DFM’s should not get any extra exemptions over any other product provider or Adviser. When I have used a DFM I regarded their offering as a product and continue to do so.

    I do agree with Julian Stevens (as above) however, that anyone who sells unregulated products should be the ones who pay most of the levies and his points are well made.

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