The director general of the advice industry’s newest trade body has said the Financial Services Compensation Scheme levy will lead to a “spiral of decline” unless it is scrapped.
Garry Heath, director general of Libertatem, said the industry should return to a regime that pre-dated the FSCS, with clients paying an additional fee for protection.
He questioned calls for financial services firms identified as higher risk to pay a greater proportion of the FSCS levy.
Mr Heath said: “Firms deemed ‘risky’ may be a short term phenomemon as they are likely to shut down. For those of you who think this is a good idea - think again.
“When a firm shuts down the administrator does not keep the paperwork for six years or in perpetuity as the FCA now demands. It is dumped in six months.
“So every ambulance chaser leaving the payment protection insurance (PPI) arena will vector in on those ex-firms as they do not exist and cannot defend themselves. Similarly, abandoned clients are far more likely to crystalize into claims than those being serviced.
“So the surviving firms will see not only FSCS increases created by the macro pressures but also additional pressures created by risk rated firms leaving the market and by so doing creating extra claims. That will inevitably lead to a spiral of decline.”
The Financial Conduct Authority is currently reviewing the FSCS levy in a process which will probably last until early next year.
But the FCA has ruled out a product levy - which advisers support - on the basis that the introduction of such a regime would require legislation, putting it outside the scope of the current study.
Mark Neale, chief executive of the FSCS, has previously said he is opposed to the introduction of a product levy.
Mr Heath launched Libertatem last May as a trade association for both independent and restricted advisers as well as wealth managers across the UK.
He said: “We have been collecting significant numbers of new members, which is great. Last month we had more members join than in the previous three months combined.
“We have got a few hundred members but it is less about how many we have than how many are needed to put up a proper job of representing the sector.”