Product levy would reduce cost of advice

Product levy would reduce cost of advice

A product levy at the point of sale would be a much fairer and more sustainable way to fund the FSCS and would reduce the cost of advice, Martin Greenwood has said.

The chief executive of network Tenet said the current system was unfair as the cost of compensation was ultimately passed down to clients of the good advisers.

“The rationale being that poor quality advisers are much more likely to go out of business, not contribute to the next FSCS levy and leave their clients to call upon the FSCS for compensation,” he said.

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An initial funding pool should be created from fines levied on the financial services industry, Mr Greenwood contended, and used in part to reduce the cost of regulation.

He added: “I doubt we would get continued access to the money from fines, but using it to set up an initial pool seems a reasonable demand. We must reduce cost pressures on advisers if we want affordable advice for consumers.”

There has been an approximate 100 per cent increase in levy costs in the past five years, escalating from £148m for 2010-2011 to £296m for 2014-2015. The FSCS has also announced a rise in the final levy for the coming financial year, with a 300 per cent rise for pension and protection intermediaries.

Keith Richards, chief executive of the Personal Finance Society, said: “It is becoming increasingly unreasonable to continue with an outdated funding system that levies unfairly against a reduced number of contributors in a post-RDR landscape.

“The industry must, of course, make a proportionate contribution to regulation and consumer protection, but it is time to review whether the current system is fit for purpose and explore alternative options.”

Chris Hannant, director of APFA, said: “There is strong sentiment around the table of our council that a sensible and sustainable solution for the future funding of the scheme is imperative, as the scale of the levies hits profitability of the sector.”

The FCA, which has committed to a review of the FSCS model by the end of 2016, declined to comment.

Adviser View

David Crozier, director of County Down-based Navigator Financial Planning, said: “Product sales that are the cause of the problems and consumers pay for it anyway, so it must be easier to spread the cost across many policies.

“It has to be funded, and is a cost we could do without, but it is not so much the money but the correlation. There needs to be a better link between the issues causing the problem, and the effect of bad advice and the insurance costs.”