It would seem most advisers are taking the latest Financial Services Compensation Scheme (FSCS) levy increase ‘on the chin’.
In its latest budget consultation for the coming levy year, the FSCS proposed a levy hike on investment advisers and life and pension intermediaries of 34% and 208% respectively.
Investment advisers will next year pay £105m, while life and pensions advisers will have to foot a bill of £40m.
These are considerable developments, yet some advisers seem quietly acquiesced to the increases.
Granted, taking into consideration the £30m interim levy that will be raised from investment advisers to complement last year’s £78m fees, the newly proposed levy actually works out slightly cheaper than last year’s. But it was still a substantial hike on the initially proposed fees, in particular for life and pensions advisers.
Facts & Figures Financial Planners managing director Simon Webster explained that he had resigned to the levy because of the inherent unfairness in the way the funding system is set up for advisers.
“I have given up on this issue. Fairness and transparency have nothing to do with it. The idea that Joe Public should be in any way responsible for his own poor financial decisions went out of the window a long time ago. I just regard all these fees and levies as a tax and a sadly necessary cost of being in business.”
He added: “If whatever [the FSCS] took was managed more fairly, if there was any discouragement against submitting bogus claims, if the decks were not so heavily stacked against advisers […] I might take more interest.”
Barretts Financial Solutions managing director Kim Barrett agreed. He also thought that the nature of the FSCS levy was inherently unfair but in the end was just another “necessary evil” his business had to take on board whether he liked it or not.
“The people left in the industry, who one assumes are the better protagonists, are having to pay for the people who have exited the industry, who were by dint not doing their job properly. That overall doesn’t seem fair,” he said.
“But that’s the system. We’ve got to swallow and accept it. It’s a cost impact that we just accept.”
The structure of the FSCS is slightly different to its regulatory counterparts, which could explain why some advisers felt reluctant to challenge it, suggested Association of Professional Financial Advisers (APFA) director general Chris Hannant.
For instance, unlike other regulatory fees such as the Financial Conduct Authority’s (FCA), Financial Ombudsman Service’s and the Money Advice Service’s, FSCS fees are not based on the cost of running a service or the amount of money needed for auxiliary things such as advertising.
There is a separate FSCS management fee but the bulk of the levy is dictated by external events – the failure of firms.
Hannant explained: “[The levy] is determined by external events and the FSCS has their best stab at what the claims will be and then bills the industry. The bill for the claims aren’t something of the FSCS’ own invention in the way the bill for the FCA’s or MAS’ regulatory fees are.”
Besides, advisers generally “recognise the value of having the reassurance provided by the compensation scheme”, he suggested.
However, Hannant said advisers should not have to put up with a levy “in the thousands [of pounds]” when it could be “in the hundreds”.
“It’s still a cost out of a business that could be used for other purposes, whether investing in technology, new staff, or used to lower prices to clients,” he said.
The FSCS funding model was already under review in 2012 but was only slightly adapted last year by introducing a new 36-month funding approach.
However, Hannant slammed the Financial Services Authority review for being little more than a “tweaking of the system so it could fit in with the FCA/PRA split”. He called for a new “top to bottom” reform of the FSCS instead.
“Retail advisory firms should not be in the same category as things like Keydata and Catalyst, which are effectively wholesale intermediaries,” he suggested.
“What I would like to see in the future is much lower levies driven by a proactive regulator, that would have been quicker off the mark on Arch Cru or Keydata or Catalyst. That would have seen far lower final compensation bills.”
