Financial advisers may be excused for reading headlines over the past week with feelings of increasing frustration.
Last week, FTAdviser reported that the Financial Conduct Authority had no intention of revisiting the funding structure for the Financial Services Compensation Scheme.
This week, the FSCS published its financial statements for the 2019/20 financial year, saying it had shelled out £282m in compensation to clients of 549 defaulted firms in the life distribution and investment intermediation class.
Approximately 75 per cent of the compensation costs stemmed from failed advice firms and discretionary fund managers, accounting for £212m of the class's bill.
Self-invested personal pensions and other pension advice claims remained the largest cost in the class, totalling £161m in successful claims.
Small wonder the fees are still rising. The same week, advisers started to receive their ‘membership’ fees for the Financial Conduct Authority - with one firm citing a £68,000 increase year-on-year, thanks to the good work it has been doing with its clients.
At a time when Covid-19 has ravaged portfolios and new business prospecting alike, financial advisers are set to pay higher-than-ever dues and levies to keep the compensation scheme liquid and the regulator running.
But what does this mean for advisers, apart from higher bills? A growing sense of frustration, as letters pouring into FTAdviser’s inbox suggests. A feeling that the regulatory bodies are only focused on raising money from those who are doing their jobs well.
A sense that they are being priced out of operating as sole traders or small concerns because they cannot see how they will continue to grow their business as fast as the bills come in.
As Chloe Cheung reported, two-thirds of advisers polled by platform Nucleus cited rising professional indemnity costs this year. Some 62 per cent said PI had become more expensive, while more than 50 per cent said securing PI in this Covid-19 world was more difficult than ever.
With reports of DFMs failing and some firms going under, the consumer complaints will only grow, and the need for repaying investors for the errors of others will become ever-more burdensome.
It was interesting also to see the reaction of Twitter users to news that Neil Woodford has taken an informal advisory role at private investment company Juno Capital, just months after his business, Woodford Investment Management, closed.
In June, the Financial Ombudsman Service said it had received 107 complaints connected to the suspended Woodford Equity Income fund over the past year.
More than a year on since the debacle unfolded, there is still approximately £220m of investors’ cash stuck in the illiquid assets, with little indication of when these will be sold, although this is a work in progress.
Some commentators have argued investors may be trapped in the wound-down fund for years.
One might reasonably ask where the funding for any compensation that Fos may decide is due to ex-Woodfod investors might come from. One might also reasonably guess.