Podcast  

'Broken regulation' must be fixed, industry warns

 

The Financial Services Compensation Scheme levy hike is the "number one" issue for advisers. 

Speaking on the FTAdviser Editor's Podcast, Tim Fassam, director of government relations and policy for the Personal Investment Management and Financial Advice association, said since he joined Pimfa a few months ago, the FSCS levy - and the fact there is a "broken system" behind it, is of utmost concern to members.

He said: "I have been meeting our members and talking to chief executives across the advice spectrum and it is safe to say FSCS is the number one issue they are raising with me as a concern in the marketplace. 

"It is about the fee that is unpredictable in every other respect apart from [the fact it is] going up, it is increasingly becoming a strain and a high proportion of their non-discretionary costs."

Gemma Harle, managing director of Quilter Financial Planning, said: "We absorbed part of the 20 per cent hike last year, because it was completely unpalatable to pass on.

"And the unpredictability of these fees means many business owners feel running a business on this basis is not sustainable, while it also creates barriers to entry.

"Moreover, these regulatory costs send the message to consumers that our industry has huge issues, which is not the case. Yes, there are going to be regulatory costs but there have to be stronger challenges to the regulator about spreading the burden and getting the costs to a realistic level."

Read our investigation: Broken system - Why financial services regulation needs reform

"This has been rumbling on for a few years", said Keith Richards, chief executive of the Personal Finance Society. But according to him, it is not just about the polluters causing high bills for 'good' advisers, as there are liabilities sitting in the FSCS that have been there for years that still need to be met.

He cited the failure of Honister, a major network that went under in 2012, because it could not secure adequate professional indemnity insurance to cover historic liabilities relating to a few firms. 

"Since 2015 to 2016, there has been a hardening in the professional indemnity insurance market, with rising premiums and a contraction in what is covered [meaning] more advice firms may well fail to secure PI - and therefore their liabilities will remain for others to pick up."

Mr Richards added: "All of the advice liability goes to the FSCS; the remainder have to shoulder a much bigger percentage of the levies, and it is not going to get better. A solution is desperately needed. Advisers across the country feel helpless in understanding what they can do to address this."

Fellow panellist Rob Sinclair, chief executive of the Association of Mortgage Intermediaries, picked up on the point of PI. He said: "There is an iceberg of liabilities that all firms carry behind them."