Proposed changes to the funding model of the Financial Services Compensation Scheme ignore the hit to revenue advisers will experience after the Retail Distribution Review, the Association of IFAs has argued.
Responding to the Financial Services Authority’s consultation on the FSCS funding model review, Chris Hannant, policy director at Aifa, said the proposals risk undermining the long-term future of the advice sector.
He said: “It is essential that the funding for the FSCS is affordable and sustainable. These proposals ignore the current economic climate, decreasing numbers of firms in the sector and the negative impact RDR will have on advisers’ revenues.
“We are calling on the FSA not to increase the threshold for investment intermediaries, not to remove cross subsidy from [Prudential Regulation Authority] regulated product providers to intermediaries, and to look again at a product levy and pre-funding.”
In July, the Financial Services Authority published its consultation paper on the funding of the FSCS, which included proposals to increase the annual levy limit for investment intermediaries from £100m to £150m and the removal of cross subsidy between Prudential Regulation Authority and the Financial Conduct Authority firms.
Research from Deloitte has suggested that more than 250 advice firms could face paying a levy that will be higher than their entire annual profit post-RDR.
Addressing the topic of cross-subsidy, Mr Hannant said: “Cross subsidy provides stability and valuable additional capacity in the funding model. The distinction between firms regulated by the PRA or the FCA is an artificial one and not a sound basis for determining FSCS funding issues.
“It is imperative that product providers should retain some responsibility toward their products and that they should be called upon to contribute, alongside the other classes, as there is a close affinity between the manufacture and distribution of products.”
Earlier this month the trade body reported a £150,000 loss which it attributed in large part to administration costs.
