Trade body renews calls for product levy

Rob Sinclair, chief executive of the mortgage trade body, said the AMI often had "regular" meetings with "senior people" at the FCA, where he has set out in detail how the product levy might work.

Mr Sinclair said: "Everyone from wealth managers to mortgage brokers and generalist advisers are being hit with these exorbitant levy increases. We have discussed the whole compensation issue in regular meetings with the FCA, including with its chairman Charles Randell. Something needs to be done."

From a consumer's perspective, seeing this as part of the product charging structure gives them confidence they are protected. -- Rob Sinclair

He noted it was not just the Financial Services Compensation Scheme levy – which has seen eye-watering increases of up to 120 per cent on some advisers' annual bill – but also ongoing FCA costs and "the risks we run with the Financial Ombudsman Service".

Mr Sinclair added: "Add to this the fact we have to carry capital as a firm to give the regulator comfort, and try to secure professional indemnity insurance – which is a double indemnity effectively – and firms are suffering.

"In the mortgage space we are seeing treblings of premiums, and from our perspective we need reform. We are pushing the FCA and we are meeting with them soon to put forward the product levy proposal again."

He claimed the AMI had tried to debate a product levy a couple of years ago, but said "while there was recognition in the room it could be the right answer, it seemed not to be in the FCA's gift to give it".

The FCA was invited to comment but had not as at time of writing. 

"A product levy might not appeal to the big providers," Mr Sinclair continued, "but when you break it down, the figures are infinitesimal. And, from a consumer's perspective, seeing this as part of the product charging structure gives them confidence they are protected. It's like seeing a travel advert saying that the holiday would be Atol protected. 

"I think this is the right answer, but we need the legislative desire to get from here to there. The industry has to accept this is the right answer; it will also protect people against unregulated products being pushed, which is also in the regulator's interest as a champion of the consumer."

Mr Sinclair added the economies of scale would also work in the industry's favour, considering the value of mortgages sold each year – approximately £245bn worth – compared with a potential product levy of a few million pounds. 

This would be the same across all sectors of the financial world, including pensions and investments, and would be a cost that could be easily absorbed, he suggested, unlike a current structure that punishes advisers. 

Ken Davy, chairman of SimplyBiz, has also been promoting a product levy as a way of restructuring the FSCS levy for many years, while Derek Bradley, founder of adviser forum Panacea, commented: "If the product were regulated, the whole playing field would change."

He suggested: "A PI cost added to the product management charges, in effect paid by the client, and advisers could only recommend regulated and regulatory approved products as the solution to the advice requirements."

Mr Bradley added: "The current model is one where no advice is free and so it scares many away, especially those that need advice, and where a commission model really filled the gap. This may be a dinosaur attitude but it still has merit.

"But right now we see the cost of advice today really means 'the cost of regulation'. The fees are out of control, and even the FSCS pays claims some might say it should not pay. Blame is always laid at the door of the adviser, the least financially resilient [link] in the whole delivery chain."

Mr Sinclair expects to have a meeting with the FCA later this month in order to reassert the AMI's product levy proposal.

simoney.kyriakou@ft.com