The Financial Services Compensation Scheme has been a perennial bugbear for advisers.
Not only do they have to pay for their professional indemnity insurance to cover for their own failings, they have to pay an ever-increasing levy to cover the failings of other financial advisers.
The news that the FSCS is going to need another £69m due to the continuing growth in pensions claims – particularly driven by claims relating to the British Steel Pension Scheme – is another sign of a system that is not fit for purpose.
Admittedly, this latest request for money will be covered by the FSCS’s retail pool, meaning advisers have been spared this time, but this cannot continue.
As valuable as the work of the FSCS is, its mounting costs risk undermining access to crucial financial services for ordinary investors.
From April 2019, the Financial Conduct Authority’s reforms to how the FSCS is funded come into effect.
These measures include merging the life and pensions and investment intermediation funding classes and requiring product providers to contribute around 25 per cent of the compensation costs that fall to the intermediation classes.
It can only be hoped these solutions prove a match to the size of the problem. The alternative is a financial advice industry that risks withering on the vine under the pressure of mounting FSCS levies and PI premiums.
Much progress has been made in improving standards in the financial advice sector, but it would be perverse for this to be killed off through the actions of those who have refused to join the vast majority of advisers on the road towards professionalisation.
It is incumbent on the FCA to keep this matter under review when its reforms come into effect next year. Simply saying ‘job done’ and washing its hands of it will lead to more apathy and disillusionment among the financial advice profession.