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Product providers are set to ditch IFA subsidy

Product providers are unlikely to continue to subsidise IFAs&#39 Financial Services Compensation Scheme levy next year because of the changes brought by depolarisation.

Negotiations are under way between providers and Aifa to extend the subsidy but Money Marketing understands that it is unlikely to be renewed.

Three years ago, the FSA decided that it was no longer appropriate for the regulator to have in-built provider subsidies and so a voluntary scheme, run by Pass, was set up to continue the subsidy until the end of 2004. Providers believe there is less justification for a subsidy when the market is depolarised.

Aifa director-general Paul Smee is working on how to differentiate between IFAs&#39 back books before depolarisation and the very different books that will emerge after depolarisation.

The ABI cannot confirm that the subsidy will continue and stresses the difficulty of continuing some- thing that is meant to be winding down as well as the problems that are involved with depolarisation.

IFAs are having difficulties getting their subsidies from Pass because of admin problems.

Product providers are understood to have been unaware of the detrimental effects that imposing a cap on the levy in cash terms rather than percentage terms would have on IFAs, with some firms of advisers being hit with increases of up to 1,000 per cent in their levy.

The cap means that providers now only account for 15 per cent of the levy for investment firms this year after accounting for 85 per cent last year.

Aegon corporate development director Laurie Edmans says: “At Aegon, we own a significant chunk of the IFA market and why should other providers subsidise our IFAs?” ABI head of life and pensions Chris Kenny says: “Pass was put in place with the expectation it would end. Getting a new kind of agreement together is never straightforward but is not impossible.

“From our point of view, we want to see strong, well-capitalised distributors but this does not mean that providers have an open chequebook for hits to distribution coming in from left field.”

•Levy deadline, p2

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