The chairman of support services provider SimplyBiz and the founder of the network concept made the call as part of SimplyBiz’s response to the Financial Advice Market Review, which was submitted in December before the consultation closed on 22 December.
The Financial Advice Market Review was launched to look at ways to improve access to advice for the mass market.
Mr Davy said: “I would like to see a radical change to the funding of the FSCS levy. This review is an opportunity to revisit the funding arrangement and the Financial Conduct Authority has already said that it would review the FSCS levy.
“At the moment it is grotesquely unfair and presents a huge hurdle to advice firms in the UK.”
While he acknowledged that any solution would have an element of imparity to it - because as it covers potential failures of firms, the polluter cannot pay - there had to be a better way to fund the levy than to impose perjorative levies on advisory firms.
He said: “There are four parties to the advice process: the client, the adviser, the provider and the regulator. Obviously the regulator cannot fund the levy as this would result in a burden on the taxpayer.
“The client obviously cannot pay, so this leaves the adviser or the product provider. At the moment advisers are footing the bill, but this is absolutely unfair.
“I have personally talked to many advisory firms and seen their invoices where the bill has risen by two or three times the previous amount, but they have barely seen a rise in their turnover. And they are asked to pay the bill within 30 days.”
I have personally talked to many advisory firms and seen their invoices where the bill has risen by two or three times the previous amount, but they have barely seen a rise in their turnover.Moreover, he claimed as advisers have no way of knowing whether another unrelated firm down the road or even in the same building is giving bad advice or heading towards bankruptcy, nor would they have any power to prevent this from happening, it was unfair to expect advisers to continue to fund the FSCS levy.
“However”, Mr Davy said, “product providers do have some influence and do have an idea of which firms are giving reckless or bad advice, or which firms seem to be failing.
“Providers receive the money from the adviser and, from their own IFA consultants, they will be able to have a better idea of where the problems lie.
“Therefore they should pick up the lion’s share of the FSCS cost. I would not mind if the IFA sector maybe paid 10 per cent of 15 per cent of the overall cost towards maintaining a compensation scheme, but the overwhelming majority of the expense should be on providers.”
When asked whether providers would support such a move, Mr Davy said: “If the advice sector is as important to them as they claim, and to many providers, it is, then they may take a reasonable view.
“A few years ago a significant number of them did indeed voluntarily contribute to subsidise the cost of the FSCS levy on advisers. And many providers are heavily dependent on the advice sector.
“If the FSCS levy were to be removed from the shoulders of IFAs, it would remove a significant barrier to more advisers joining the industry and remove an inhibitor to business growth.”
This point was one of several made by SimplyBiz’s FAMR response; it also called for a more flexible remuneration scheme, such as introducing remuneration over the life of a product; the introduction of a 15-year long stop, creating simpler ways of expressing costs to consumers; using technology more widely and wisely to improve guidance for consumers; and to lighten the regulatory burden on the advice industry.
simoney.kyriakou@ft.com
