An adviser has been forced to invoice his clients to help cover his regulatory bill after the Financial Services Compensation Scheme costs levied against his firm jumped 140 per cent in three years.
Tim Harvey, of HR Independent Financial Services, received his regulatory bill — which had increased 32 per cent year-on-year — this morning (August 19) prompting him to inform several clients he would need to invoice them to help cover the additional costs.
The primary cause of the increase was the FSCS levy, which has increased 140 per cent from £2,300 in 2017 to £5,500 this year.
He had previously written to his client bank explaining that although the firm had been able to cover the FSCS levy on prior occasions without passing it on, this looked “increasingly unlikely” going forward.
He said: “In the past [we have] been able to cover the FSCS fee, but this looks increasingly unlikely due to the size and unpredictable nature of it.
“It may well be that in the future I ask for a small contribution to cover this cost from each of my clients when the bill arrives.”
Mr Harvey intends to provide a letter for his clients to forward to their MPs to draw attention to the fact they were being forced to “bail out bad businesses”.
The clients have said they “understand” why he needs to invoice them, but added they are “not happy” and will forward the letter to parliamentary representatives.
Mr Harvey also told his clients he had worked very hard with Pimfa and the Financial Conduct Authority to address the “inherent unfairness” of the system by which the “good guys bail out the bad guys”.
His plight is one mirrored throughout the advice industry.
Last month FTAdviser learned of businesses receiving regulatory bills up to 61 per cent higher than last year’s invoice, while some advisers claimed even larger jumps in costs.
For many, the primary cause of the hike stemmed from an increase in the FSCS levy.
The dramatic rises led advisers to sound warning bells that the much-discussed advice gap was likely to widen further as consumers were priced out of advice when firms are forced to increase their fees in order to balance the books.
Read more: Financial Adviser's letter to MPs as part of the Keep Fees Fair campaign
Mr Harvey is not the only adviser taking steps to mitigate the rising FSCS costs.
Stephen Willis, chartered financial planner at Piercefield Oliver, told FTAdviser he was planning to shelve his firm’s growth plans after his regulatory bill rocketed 144 per cent in just two years.
Others said they had “no alternative” but to increase the fees charged to customers.
Chief executive of the FSCS, Caroline Rainbird, has expressed regret and understanding of how the levy affects the advice industry and pledged the body was doing all in its power to prevent firms from failing and, in turn, lower the levy.
Meanwhile chairman of the lifeboat scheme Marshall Bailey previously hinted to FTAdviser he would welcome a review of the current funding structure and urged for more discussion over the regulatory set up.
But just last month the FCA revealed it had no plans to revisit the funding structure of the FSCS, despite its own chairman warning earlier this year the system needed a restructure.
How the FSCS is funded is not set by the scheme itself but by the City watchdog.
Charles Randall, chairman of the regulator, said the system needed to be redesigned so "polluting firms" in the financial sector paid the bill for high risk and unsuitable investments, not "well-run firms" via the compensation scheme.
It echoed what many advisers have protested for a long time — that the ‘good guys always pay’.
Advisers also argue the FSCS fees levied on firms — alongside a hardening PI market — are making some advice businesses unviable.
Earlier this year a number of advisers contacted their MPs and the FSCS received letters asking for a discussion about the levy structure.
Since the coronavirus crisis began, advisers have raised further concerns the “extreme pressure” caused by ongoing levy increases could exacerbate the financial challenges being faced by the industry.
imogen.tew@ft.com
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