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FTADVISER BLOG

FSA must listen to reason on FSCS IFA levies

Investment Adviser backs common-sense calls for a product levy to make compensation costs fair.

By John Kenchington | Published Aug 20, 2012 | comments

In spite of the controversy over the RDR, when it is implemented, the UK will have one of the most advanced and fair investment distribution structures in the world.

But this ‘jewel in the crown’ of UK financial services could yet be derailed by the exorbitant levies that advisers continue to face, specifically from the Financial Services Compensation Scheme (FSCS). Moreover, the scheme bills advisers to compensate for the failings of other financial firms, not their own. Some of these firms are not even financial advisers.

Last week a survey by PanaceaIFA.com showed that more than half – 52 per cent – of 491 advisers polled said if levies from the scheme increased it would leave them unable to pay. This is why many quarters of the adviser industry are now advocating a system of taking levies from products, under which clients all pay a small amount every time they invest so they can be afforded compensation protection against catastrophic investment failures.

By contrast, a disappointing recent FSA consultation on the scheme proposed nothing more than a puzzling system of cross-subsidies, and a rise in investment intermediaries’ total possible levies from £100m to £150m.

The FSA argued against product levies on the basis that product risks cannot easily be assessed, which would enable varying product levies to be assigned. However, this contradicts what the regulator told IFAs in recent papers – that they must assess the risks of products they recommend to their clients. The FSA also argued that a product levy might not be harmonious with European laws, and that intermediaries would not be charged to pay for compensation, although it believes they should.

Fundamentally, if the FSA really believes in its own RDR ambitions – to turn financial advice into a professional service akin to being a doctor or solicitor – then it must stop bashing the industry and nurture it accordingly.

The FSCS funding consultation closes on October 25. Given the PanaceaIFA survey, Investment Adviser urges all respondents to back the common-sense product levy, and calls for the FSA to listen to reason.

John Kenchington is news editor at Investment Adviser

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Hal Austin

Hal is editor of Financial Adviser and has been for more than a decade. He has previously worked on a number of local and national publications.

Ashley Wassall

Ashley is editor of FTAdviser and writes on all areas of retail finance. Previously supplements editor at Money Management and editor of a European private equity publication.

John Kenchington

John is editor of Investment Adviser and has written about investments for several years. He has worked at titles including City AM and was recently named in the MHP 30 To Watch list of up-and-coming media names.

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Jon is editor of Money Management and has 12 years' experience covering retail personal finance. In 2005, Jon was launch editor of FTAdviser and most recently he was head of online content for Incisive Media's financial services titles.

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John Lappin

John is a weekly contributor to Investment Adviser with 15 years’ experience in financial journalism and 10 years writing on the IFA sector. He was formerly editor of an IFA trade magazine.

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