Financial Conduct Authority  

FCA PI delay to cause 'severe hardship' for IFAs

Under proposals repeatedly mooted by the PFS, financial compensation would be funded from both the market and a levy on the £9trn of retail assets managed by the UK investment industry.

The professional body claims such a levy, which would pay all existing compensation and fund proactive consumer education through the Money and Pensions Service, would only cost about 0.006 per cent of a firm’s assets under management.

Martin Bamford, head of client education at Informed Choice, said: "It simply isn't good enough for the FCA to drag their heels over these critical issues of FSCS funding and PI insurance affordability.

"Good financial planning businesses will go bust before reforms take place."

Mr Rathi's predictions of a two to three year solution were in response to a question from Treasury select committee chairman Mel Stride, who said MPs had received a "huge amount of correspondence" from IFAs on the issue of rising regulatory and insurance costs.

The timeframe for improvement was also echoed by FCA chairman Charles Randell who told MPs it would take "several years" to reduce the cost of the Financial Services Compensation Scheme levy and professional indemnity insurance which has plagued IFAs in recent years. 

Rising costs

The FCA's delay also prompted advisers to reinforce warnings that the cost of advice was likely to increase without a solution to rising regulatory bills.

Peter Chadborn, director at Plan Money, said it was "pleasing" the issue was being taken seriously but disappointing the timescales for resolve were so long.

He added: "This will absolutely be at the detriment of IFA clients and the wider consumer.

"In order to remain profitable, advice fees will have to increase to cover the exponential rise in PI premiums and the disproportionate allocation of FSCS levies."

Steve Carlson, adviser at Carlson Wealth Management, agreed, adding that increased costs to advice firms would "filter down" and widen the advice gap.

The concerns echo those raised in the summer, when advisers first began receiving invoices up to 61 per cent higher than last year's bill.

Mr Carlson flagged the impact on defined benefit transfer advice as the main victim, claiming that those without money to pay substantial fees upfront would find it impossible to get transfer advice.

He said: "Firms either can't get cover for it or don't want to because of rising PI costs.

"That, and the new rules on contingent charging, means people will find it extremely hard to get DB advice.

"The market was broken before, but what's happened hasn't fixed it — it's just broken it in a different way."

When approached about this article, the FCA had nothing to add to Mr Rathi and Mr Randell's comments on the situation.