View more on these topics

Providers to pay a quarter of advisers’ FSCS bills

Providers will have to contribute 25 per cent of advisers’ Financial Services Compensation Scheme bills, the FCA has ruled today.

Despite fierce opposition from some providers, and some advisers arguing that providers should pay up to 50 or 75 per cent in response to the FCA’s consultation, the regulator has decided to go ahead with proposals for providers to field a quarter of advisers’ funding requirement.

The provider contributions will also include discretionary fund managers and depositaries.

The FCA writes: “We think that requiring providers to play more of a role in contributing to the FSCS reflects the fact that these firms benefit from overall  confidence in the UK market and the structures that exist for the distribution of products to consumers. Requiring providers to contribute should further incentivise them to design products that are well understood by intermediaries and that benefit end consumers, and to understand and exercise control over their distribution chains.”

Providers such as Aegon has been in favour of the move, but others noted that they could not be held responsible for advisers’ behaviour, and the costs of increased scrutiny of advisers might be passed on to consumers, according to the consultation responses published today.

Some vertically integrated firms said they should only have to pay costs if their own advice business failed, but the FCA dismissed this on the basis that if it “removed firms with direct sales models, providers who use external intermediaries would subsidise levies paid by those who do not.”

The FCA added that alternative proposals for FSCS funding put forward by providers would either increase the volatility or complexity of the scheme.

The regulator writes: “Given the complexity of the financial services market we are wary of introducing an overly complex calculation. We thought that 25 per cent was a reasonable reflection of our overall policy aims, accepting the divergent industry views on the topic, and recognising that this is a significant change.”

The decision comes after a multi-year review of FSCS funding by the FCA, with several other new rules intend to reduce the volatility of compensation bills and ensure different sectors contribute fairly.

Previously, adviser business was split into two classes – pensions and investment intermediation – with FSCS bills calculated based on the respective turnover from each pool.

To streamline this, the FCA has decided to merge the two classes.

Advisers selling pure protection will also be moved out of those pools to sit in the general insurance distribution funding pot.

However, at the same time, the limit on claims for investment intermediation will increase from £50,000 to £85,000. This helps address the discrepancy in limits between annuities, for example, where 100 per cent of the policy is covered because it is insurance backed, and drawdown style products where bad advice has been received.

The FCA has proposed a further new rule, that professional indemnity policies do not bar claims in the case of insolvent firms, shifting more compensation to insurers rather than the FSCS.

The FCA writes: “We are aware that historically, some PII providers have sought to limit their liability by preventing the FSCS from making a claim on the policy…Where a firm has, for example, provided negligent financial advice for a consumer to invest in a fund, we do not believe a claim on that firm’s PII should be excluded by virtue of the insured or the fund becoming insolvent, provided the claim has been notified correctly and the product is not otherwise excluded.”


Are fund manager pay deals still fit for purpose?

The debate around how fund managers’ pay incentives should work has been reignited. Firms have started to introduce new cost structures in an attempt to improve transparency, as the FCA steps up its focus on how asset managers assess their value. The companies that have already introduced new fee models claim it will not change […]


Foster Denovo poaches ex-Towry M&A head to drive deals

National advice firm Foster Denovo has poached former Towry M&A head Henna Fry to lead its acquisition strategy. Fry played a leading role in the sale of Towry to Tilney Bestinvest before leaving her role in 2016 to become an independent consultant. She will take on the newly created role of head of corporate development […]


Pru adviser under fire over transfer value confusion

Prudential must compensate a customer whose transfer value was significantly reduced after a meeting with an in-house adviser. According to a Financial Ombudsman Service decision, the customer, called Mr L, was told on 2 March 2017 that the transfer value for his pension policy was £141,981. He met with a Prudential adviser, who recommended he […]


Natixis Global Asset Management’s quarterly Portfolio Barometer offers insights into UK financial advisers’ model portfolios and the allocation decisions they are making. Natixis’s Portfolio Research & Consulting Group works with financial advisers and other intermediaries to analyse and enhance their model portfolios and help them develop investor portfolios suited to today’s complex markets. The Portfolio […]


News and expert analysis straight to your inbox

Sign up


There are 2 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 1st May 2018 at 9:39 am

    Of what practical value is a requirement on PII insurers to accept claims from the FSCS unless the FCA mandates that no firm may conduct (or be in any way involved or connected with the arranging of) business of any type not covered by its PII, e.g. UCIS? The FSCS could raise a claim against the policy of a defunct firm only for the insurer to reject it, quite legitimately, on the grounds that said policy doesn’t cover that class of business under any circumstances.

  2. David Bennett 3rd May 2018 at 10:05 am

    I thought the customers were advised by Advisers, not by providers.

    A product which is suitable for one customer, may not be suitable for another.

    Will Advisers be content for providers to re assess and reject the advice they gave.

Leave a comment