Advisers have emphasised the need for reform of the Financial Services Compensation Scheme levy after being told a product levy would not happen through the current review.
The Financial Conduct Authority has told the Personal Finance Society a product levy - would would see clients and other consumers contributing to the FSCS, rather than advisers - would need legislation to be passed by Parliament.
Instead the review into the FSCS levy, which was launched earlier this year, will focus on reforming the existing system, with smoothing the fees out suggested as one alternative.
Kevin Morgan, managing director of Hertfordshire-based Consilium Financial Planning, said the current system goes against the idea of “natural justice”.
He said: “It is a punitive levy and increasingly putting some of the smaller IFAs under threat because the cost is so huge.
“A product levy has been mooted for some years. I don’t know about smoothing, all I know is that the status quo is not fair and the upshot will be that we will have to increase fees.”
Tim Harvey, director of Devon-based HR Independent, said: “The problem centres around the actual size of the money being paid out and that needs to be the starting point.
“If all you are focusing on is smoothing it out you are not really focusing on the underlying issue.
“Does the fact that it will need legislation to introduce a product levy mean that if something is really important you should never do it because it is difficult?”
A product levy is popular among advisers and would be attached to the transaction and sale of product which would be added to its price and paid by the consumer.
But Matthew Harris, director of Edinburgh-based Harris Independent Financial Advice, was uncertain about the now dropped idea.
He said: “I am not sure I quite agree the client should be paying for the FSCS levy. Personally I think a combination of advisers and the taxpayer should pay.
“It would be nice if there was a more intelligent approach taken to how much each firm pays because at the moment it is just based on revenue and not on the type of products you deal with.”
In March acting FCA chief executive Tracey McDermott said the review of the FSCS levy, which has recently begun, would probably take a year.
