It would be churlish not to welcome the fact that this summer the Financial Conduct Authority is going to have discussions with the industry to try to find a better way of funding the Financial Services Compensation Scheme levy. That the system is grossly unfair to the advisory sector is not in doubt; the issue is: can we find a better way?
Personally, I believe we can. Indeed, given that the system is so fundamentally flawed, almost any change is bound to be an improvement.
However, the reality is that tinkering with the problem will not be enough. We need radical change if we are to find a lasting solution. To his credit, Mark Neale, chief executive of the FSCS, has urged financial advisers to get involved with the debate to create a fairer system. Unfortunately, he then immediately narrowed the opportunity for change by focusing on advisers who are paying a risk-based levy.
In my view, a risk-based levy, which undoubtedly would be an improvement on the current system, would be more akin to rearranging the deckchairs on the Titanic than the fundamental rethink that the FSCS funding needs. I believe we need a product levy if we are to properly and fairly fund the FSCS.
Although a 1 per cent product levy operated very successfully in general insurance from the 1970s until 10 years ago, this solution has recently been summarily rejected.
The impact of the FSCS levy and its grotesque unfairness is such an important facet of the financial advice market, I believe the FCA has a duty to demonstrate exactly why it believes a product levy is not an acceptable solution. Frankly, it is not good enough simply to brush it aside, especially as the FCA has stated many times that ultimately it is the consumer who has to meet the cost of the FSCS.
If the FCA accepts the simple reality that a product levy would be the fairest way to fund the FSCS, what prevents its introduction? It is possible that there is a technical reason, such as a need for primary legislation, in which case it would be very simple to apply a levy on providers based on their product sales. This would, in essence, achieve the same objectives and fairness as a product levy.
Every adviser has the opportunity to influence the FCA on this vital issue, and I urge you to make your views heard, either directly or via your representatives. If you ignore this opportunity, it will be no good complaining in the future. Let the FCA know that the FSCS funding needs radical change; moving the deckchairs around will simply not be good enough.
Ken Davy is chairman of the SimplyBiz Group