The spirit of the American War of Independence is often illustrated by the Boston Tea Party, when Bostonians dressed as Native Americans dumped a cargo of tea into the harbour to highlight the fundamental injustice of ‘taxation without representation’.
IFAs suffer a similar fundamental injustice in the way the costs of the Financial Services Compensation Scheme are unfairly levied upon them. This is an injustice which has continued for far too long, so perhaps it is time IFAs thought about organising their own ‘FSCS Tea Party’.
Quite simply, I do not believe any fair-minded observer could possibly consider the way the burden of the FSCS levy falls on IFAs as anything other than a travesty of justice. How can it be right for an IFA in Plymouth to be forced to pay a levy for a firm in Aberdeen which has given bad advice and gone bust? Obviously consumers need to be protected and I strongly support the principles of the FSCS. The issue is how it is funded.
The Plymouth/Aberdeen example above is not extreme; it simply highlights the wrong being done to every IFA firm in the country. There is absolutely no possibility of the Plymouth IFA having any knowledge, influence or control over the advice the firm in Aberdeen has given to its clients, yet they, along with every other IFA, have to pay the compensation levy.
If you then set this injustice against the continuing reduction in IFA complaints reported by Fos, the way the FSCS levy is currently funded becomes even more absurd. The latest Fos figures demonstrate that in a career of more than 30 years, the average adviser is likely to have just one, or possibly two, upheld complaints against them. In today’s litigious society, I believe this is a tribute to the quality of advice and service delivered to the public by IFAs, which has delivered a record most of the other professions look at with envy.
Instead of trying to collect a levy from thousands of IFAs who have no possibility of stopping rogue firms giving bad advice, the simplest and most cost-effective solution is for the FSCS to charge the authorised companies who use the IFA distribution channel a fee related to their IFA sales.
This would be fair, easy to administer and simple to understand – everything the current system is not. It also has the real benefit of placing a responsibility on providers to consider the honesty and integrity of the firms they deal with.
There are some positive signs starting to emerge that the Treasury and the FCA are at last beginning to recognise the real value to consumers of IFAs. I urge them to address the injustice of the FSCS funding as a matter of urgency before the FSCS levy forces IFAs themselves to go on the warpath.
Ken Davy, Chairman of SimplyBiz
