Advisers and others have called for radical solutions, including intermediaries willing to advise on unregulated investments being carved out from the rest of the sector for the purposes of the compensation scheme, to stem a rising tide of levies.
This morning, the FSCS revealed that pension and life intermediaries would be stung with a maximum £100m levy, a 75 per cent increase than that which was expected when the FSCS gave its levy indication earlier this year and three times last year’s bill.
Costs are rising - and may even exceed the upper threshold and therefore add costs to other sectors - due to a flood of complaints over unregulated investments wrapped into self-invested pensions.
One adviser responded by commenting that advisers that process unregulated business should be hived off into a separate funding category to prevent costs falling on those that specifically avoid advising on these schemes.
Speaking to FTAdviser, Chris Hannant, director general of the Association of Professional Financial Advisers, said that the source of the problem needs to be tackled rather than looking at alternative ways of spreading the levy across the funding sector.
Mr Hannant said: “More work needs to be done as to how some things can be allowed to be sold. Maybe the FCA needs to take a look at what is in the market. They have got product intervention powers, maybe they should use them.”
A spokesman for the FCA said: “We can’t use our product intervention powers on unregulated investments.”
Mr Hannant added that the “unsustainable” levy is likely to be affected by the newly introduced pension freedoms. The FCA, the Association of British Insurers and various pension providers have all come out in recent months, warning consumers about pension scams.
While Mr Hannant ruled out a blanket ‘no compensation’ to those investments that have been affected by scams and fraud, he said Apfa members have had conversations about whether compensation should be “restricted” to “more conventional” products or a “designated list”.
“I hesitate in banning them all [unregulated investments] but a small part of the sector are putting people in unsuitable investments and this is costing the rest of the sector and this is not sustainable for government’s new pension reform objectives.
“Providing a safety net for investing recklessly seems silly... We need a fair balance and we should not be having a system that rewards reckless behaviour.”
Martin Tilley, director of technical services at Sipp provider Dentons, told FTAdviser that several IFAs have called for Sipp providers to contribute to intermediary levies to reflect their role.
However he highlighted ombudsman decisions which found against claimants who attacked Sipp providers, which have broadly upheld the principle that providers do not review the suitability of the investment.
“The pensions ombudsman used the explanation that at the time the investments were made, it was not the Sipp providers responsibility to review and assess the investments it accepted although the regulators second thematic review of 2012 made this more of an issue.
“Thus I don’t think the FSCS could be levied against Sipp operators as it would go against the PO’s reasoning.”
Mr Tilley also echoed views that compensation should be more limited as he added it is “unfortunate” that the FSCS feels that all of these cases should be compensated.
“It would also be interesting to know if they are compensating only those that came through regulated advisers, or those that were sold to by unregulated providers directly to a Sipp operator.
“Whilst I have some sympathy for the clients who have lost their funds, it does seem unreasonable that these individuals, who shunned the regulated adviser community... should now be compensated for the same for their own greed and naivety by the advisers they chose not to use.”
Graeme Mitchell, managing director at Lowland Financial, added: “I think it’s time the FSCS started charging something for all complaints before they start any investigation.
“Also why is it so difficult to identify what is an unregulated investment? I had an approach years ago from a property fund which I figured was legitimate. But I had no idea it was unregulated. Fortunately I didn’t fully understand it and with no track record I didn’t use it.”
donia.o’loughlin@ft.com
