The adviser trade body has called on the City watchdog to "carefully consider" whether its regime is fit for purpose as the compensation levy paid by the industry to cover rogue and defunct firms rose by £87m.
This morning (January 16) the lifeboat scheme predicted it would increase the levy on the industry by almost 16 per cent year-on-year, landing a total bill of £635m on advisers and providers for 2020-21.
But Pimfa, the UK's financial adviser trade body, said the all-time high costs falling on its member firms were "totally unsustainable" and "ultimately borne" by firms who did not give rise to consumer detriment.
Liz Field, Pimfa's chief executive, said: "The year-on-year excessive level of compensation cost is such that we call upon the Financial Conduct Authority board to carefully consider whether its existing supervisory regime is fit for purpose."
She also urged HM Treasury to fundamentally review the purpose of the levy and its impact on good firms, arguing the system was "not working" and "fundamentally impacted" a firm's ability to invest in their business and enhance services for clients.
Advisers, who are set to see their individual levy rise by 13 per cent, have branded the increase "galling" and argued the magnitude of the cost showed UK financial services regulation was in need of urgent reform.
Scott Gallacher, chartered financial planner at Rowley Turton, said: “It is somewhat galling when good advisers such as ourselves, who have entirely avoided these suspect schemes, have to then pay for the mistakes of others by way of higher FSCS levies.
“The vast majority of good advisers have seen this coming for a while and I suppose we should be thankful that the regulations seem to be catching up.”
Martin Bamford, director of Client Education at Informed Choice, said the levy “made [his] blood boil”. He said: “The FCA should not be allowed to let misselling happen on such a massive scale with regulated firms picking up the pieces.”
Paul Stocks, director at Dobson & Hodge, agreed. He said: “It continues to be frustrating that the cost of giving regulated advice faces ever increasing pressures as a result of regulatory levies which, in turn, seem to reflect issues arising from unregulated investments which have either failed or appear to be fraudulent from the outset.”
Darren Cooke, chartered financial planner at Red Circle Financial Planning, said he was "disappointed and angry" but "not surprised" at the levy increase, branding the FSCS funding system "broken".
He said: "The good guys pay for the bad guys. Even when the sinners are caught and fined, the money doesn't go into the pot to pay for their crimes."
The FSCS put the increased levy down to a rise in the number of self-invested personal pension claims, saying Sipp firms had behaved in a way which gave rise to a civil liability to investors.
There have been nine Sipp operator failures since January 2018 and the expected annual cost for 2020-21 is £209m. Before 2018 there had been no such failures.
The scheme pointed to GPC Sipp and Berkeley Burke Sipp Administration as two high profile cases, noting there was a chance of more claims relating to these companies in particular and this area in general.
It expects to make 7,700 decisions on Sipp claims in 2020-21 — 114 per cent more than 2019-20.
Mr Gallacher said the misuse of Sipps by dubious advisers and a lack of due diligence on behalf of Sipp providers was a “toxic mix”.
He added: “Previously I’ve upset some Sipp providers by describing Sipps as the ‘Wild West’ of financial services.
“This can be taken two ways: a pioneering spirit with new opportunities or an area with too many cowboys. I think both are true.”
Mr Cook said too many Sipp operators had taken on "rubbish investments" when a "cursory bit of due diligence" would have "alarm bells ringing".
He said: "This isn't just the smaller providers as some of the bigger providers have their hands dirty as well. They should not be allowed to hide from this."
A spokesperson from the FSCS said: "We are deeply conscious that without levy payers funding and support the FSCS cannot expect to carry out its remit.
"However, we recognise the industry’s concerns about the rising trends in compensation costs, and it is key for us to continue to work with the industry to reduce those costs, whilst avoiding consumer detriment and maintaining confidence in the financial services sector."
The FCA and HM Treasury did not respond to a request for comment.
imogen.tew@ft.com
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