The separation between life and pensions and investment intermediation was never a natural split for firms, and we know that firms spend a disproportionate amount of time trying to segregate and develop appropriate rationale for splitting their advice register into these two seemingly arbitrary funding pools.
As well as reducing the operational burden of generating this split solely for the purpose of FSCS funding, having more firms within a single funding class will help decrease volatility and reduce the likelihood the retail pool will need to be called upon, making the FSCS levy more stable.
Another concern arising from the FCA’s initial consultation related to firms that intermediate pure protection insurance and are paying increased levies as part of the life and pensions intermediation class due to the rise in claims for unsuitable advice on Sipps. To address this, the FCA will move these firms into the general insurance distribution class as the risk profile of the firms in this class are more closely aligned.
Again, we see that common sense has prevailed here as intermediated pure protection is more closely aligned to general insurance and protection than it is to life and pensions. However, the consequence of this change will reduce the number of contributors in this class and, therefore, contributions from the remaining firms will to a degree off-set the inclusion of product providers summarised below.
These changes to funding classes will come into force on 1 April 2019.
• Provider contributions
Requiring providers to contribute 25 per cent of the levy for the intermediary funding class was certainly one of the FCA’s more controversial proposals in its previous consultation and, unsurprisingly, generated significant amounts of feedback from both intermediaries and providers.
It is hard to argue with the regulator’s view that all providers benefit from market structures that enable the effective distribution of products to consumers (even where they themselves do not rely on intermediation) and should therefore contribute to the fair funding of the FSCS.
Rising compliance costs, including the FSCS levy, do nothing to address the advice gap that caused much consternation for both the regulator and politicians over recent years, and this measure is designed to help improve the sustainability of the advice sector, ensuring consumers are able to access the advice they need at an affordable price.
This new measure is also likely to act as further incentive for providers to ensure they have an appropriately customer-centric culture and are designing products suitable for the specified target market.
