The founder and chair of SimplyBiz has said the latest cut to the Financial Services Compensation Scheme’s levy on advice firms is “akin to putting sticking plaster on a broken leg” and he hopes for “real reform” in 2023.
Ken Davy has long fought against the FSCS levy, which is paid by advice firms to fund redress for investors who fall victim to bad advice given by firms which have later defaulted.
Projections for the levy have nearly halved over the past year.
In May, it went down by a third to £625mn, and then in November it fell further to £478mn.
Despite the successive cuts, advisers remain sceptical that things could change and that even if they do not, the figure is still “far too high”.
Davy told FTAdviser that current economic pressures mean any cost savings should be welcomed, but he questioned: “Is this really good news for financial advisers?”
He went on: “I would suggest only in the same way that it would be a relief if your neighbour stopped their 3am drum lessons, to take up the trombone.
“The rot at the heart of the FSCS levy is its grotesquely unfair funding methodology, which punishes the vast majority of good advisers for the sins of the small minority of bad apples.
“Until this fundamental wrong is righted, reductions in cost are akin to putting sticking plaster on a broken leg. We can only hope that next year will bring some real reform of FSCS funding.”
Davy said what is very clear looking back at 2022 is how much individual clients, and their families, have appreciated the value the majority of independent financial advisers deliver to them.
“2022 has certainly been an extremely troubling time for consumers, and financial advisers have once again emerged as the ‘heroes of the hour’,” he said.
The SimplyBiz chair is not the only one to call for fundamental reforms to the FSCS levy in order to ease the burden on firms getting it right.
Pimfa chief executive Liz Field said back in March there was “absolutely scope” to consider how the FSCS levy is reconfigured.
But she said any approach taken needs to be practical and ensure that it is consistent with other compensation regimes like the Financial Ombudsman Service.
“The levy, by its nature, is backwards not forward looking. Colleagues at the FSCS tell me that it takes multiple years for harm to work its way through the system and onto the FSCS,” said Field.
She said one alternative pool the FSCS could draw from is Financial Conduct Authority fines.
“These are currently diverted towards the Treasury with a small amount used towards charitable donations. We do not propose re-diverting funds that are earmarked for charitable endeavours but, looking at last year alone, FCA fines made up around 80 per cent of the total FSCS levy.”
ruby.hinchliffe@ft.com
