OpinionMay 25 2023

Good advisers take the rap yet again

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Good advisers take the rap yet again
FSCS levies are increasingly hard on the good advisers. (Mikhail Nilov/Pexels)

Hardly a week goes by without seeing a statement from the Financial Services Compensation Scheme about yet another company going under and casting its claims back onto the lifeboat fund.

Just yesterday (May 24), FTAdviser reported on two more advice firms, together facing 337 claims, have defaulted onto the FSCS. 

That's 337 desperate customers waiting for justice. 

And today, (May 25), Caroline Rainbird, chief executive of the FSCS, said that the marginally lower levy increase for 2023-24 was only marginal because: “The advice market continues to drive most of the claims we see."

In fact, she added: "Now sitting at £213mn, life distribution and investment intermediation is the only class that has seen its compensation forecast increase slightly since November’s outlook."

It's time, once again, to call for a model that rewards good behaviour with discounted levy increases.

Unsurprisingly, Rainbird said they expected some of the compensation in this class will be paid to former members of the British Steel Pension Scheme, where their advice firm has already failed.

She added: "The FCA’s redress scheme for these former members is now up and running and, by the end of this year, those firms that are still in business should pay any redress they owe.”

But how many of those firms will still be in business?

Hundreds, if not thousands of clients whose firms are defaulting or have defaulted will end up in the FSCS. 

No adviser would deny the importance of having a lifeboat for stranded customers. It's the mark of a system designed to help protect consumers. 

But the continued costs on the thousands of good advisers out there, who have never missold a defined benefit pension transfer or recommended clients to invest in Cape Verde hotel developments, have to end up paying out, time and again. 

Message received?

And the message being received from the FSCS  is that - "most claims come from advisers, so advisers will still have to pay the most" is not as fair as it sounds. 

It layers the punishment on those who remain.

It raises business costs on advisers who have always done the right thing by their customers. 

It squeezes the pockets of advice firms further at a time when the cost of everything is going up.

And it comes at a time when the FCA is sending out yet another financial resilience survey. 

It's almost impossible to have the polluter pay - unless there's a way in which the regulators are given more powers to go after individual's bank accounts.

But the money is probably already in the adviser's mother's garden renovation.

Nor is it fair to raise this as a general tax on the population, in the same way that taxpayers fund the emergency services. 

The levy has to come from the financial services world itself.

But at a time when advisers are busy getting to grips with consumer duty and working on promoting their profession, having a message come across loud and clear that "it's your mess; you pay for it" can't sit well with the profession.

The message - whether intended or not - comes across as making everyone sit in class detention as punishment for naughty Billy sticking gum on the teacher's chair. 

As any teacher will tell you, the more you incentivise good behaviour, the better will be the general behaviour of the class. 

It's time, once again, to call for a model that rewards good behaviour with discounted levy increases.

If the polluter cannot, or will not pay, at least make some provision for those in the profession who have continually, year after year, caused no harm to anyone. 

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