Clients have been left “gobsmacked” at the rising regulatory bills landing on advice firms’ doorsteps after an adviser warned them he would have to invoice them to help cover the cost.
Tim Harvey, of HR Independent Financial Services, told FTAdviser his clients had been “absolutely gobsmacked” when he explained that the levy to fund the lifeboat scheme had more than doubled over three years.
He received his regulatory bill — which had increased 32 per cent year-on-year — last month. The primary cause of the increase was the Financial Services Compensation Scheme levy, which had increased 140 per cent, from £2,300 in 2017 to £5,500 this year.
At the time, he told FTAdviser he would have to ask his clients to pay towards the increase and has since spoken to his client bank about the possibility.
He said: “It has been fascinating. I’ve spoken to the majority of my client bank and they have all said ‘we absolutely get that, of course we will help out’.
“It is panning out at about £50 per client and they have just said ‘that is the cost, that’s just one of those things’.”
Although happy to share the bill, Mr Harvey said his clients were nevertheless shocked at the cost of funding the FSCS.
Mr Harvey said the news did not “come out of the blue” for most clients as he had been speaking to people for the last couple of years about the fact the costs may have to go up.
He added: “In general, the feedback has been very positive. I am invoicing them separately as this is me collecting the money on behalf of the FSCS.
Mr Harvey thought invoicing clients separately could work for smaller IFAs, but would not be the right thing for every advice firm.
He said: “As an industry wide approach, it may not be the best thing to do. The bigger firms can shrug their shoulders and just add an extra 0.005 per cent to the fees.
“For smaller IFAs, it could work, as long as you sit down and have a conversation with them about what has been going on.”
It was “more pertinent” for one- to four-man bands to cover the cost, too, Mr Harvey said, as the extra thousands of pounds came “directly from [his] pocket”.
Advice firms have seen dramatic rises in their FSCS levy costs over the past few years as defined benefit transfer and complex Sipp claims have come to haunt the industry.
In the summer, 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.
The increases 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.
The Financial Conduct Authority this month said it was looking to adjust the funding for the UK’s compensation scheme in a bid to ensure “polluting” firms paid more of the bill.