After reading about the apparent ‘phoenixing’ of another advice firm, when discussing with the guys at Financial Planning Today possible content for this, my latest article, this was top of the pile of things that ‘get my goat’!
We saw January mark the announcement of the latest set of FSCS levies, and we wait with baited breath to see what our proportion of that bill will be.
Let me state from the outset, I don’t have an issue with the FSCS, and I don’t necessarily have an issue with having to pay something towards this scheme, which is there to protect consumers against financial loss. However, I do have two issues:
- How the levy is calculated
- How certain firms seem to be able to just walk away from their financial liabilities
On both points, once again, I find myself getting riled by the fact that my firm as a financially sound, financially frugal, carefully managed firm providing relatively low risk and high quality advice to our loyal and long-standing clients gets hit by the bills left behind by those running poorly managed businesses and providing poor quality advice.
On the first point, shouldn’t there be some sort of risk-based levy? And how might that levy be calculated? Firstly, on the type of business that is being transacted and therefore the likely level of claims, but also based on some sort of assessment of the financial security of the business and how it might support that level of claims.
There should also be some sort of link to and improvements in PI coverage, ensuring that insurance, rather than the firm and subsequently the FSCS, covers any liabilities. Could improved cover reduce the likelihood of FSCS claims, and therefore reduce levies across the industry? Yes, insurance premiums will likely increase, but in relation to firm specific risk, rather than the blanket brush of the FSCS levy.
It’s important to recognise that Phoenixing is not illegal. But, directors seem to very easily be able to wind up a firm, leaving its’ liabilities with the FSCS to deal with, and then start again, having acquired the assets and clients from the original firm.
Of course, there are situations where firms fail, through no fault of the directors. We have to realise that there are those that are “genuinely starting again” and these people deserve a second chance.
However, there are those that are quite clearly walking away from their responsibilities and leaving the rest of the industry to foot their bill.
Just because it’s not illegal doesn’t make it either right or ethical and it’s a practice that needs to be stopped.
Nicola Watts APFS Chartered Financial Planner, Chartered Wealth Manager, CFPTM Chartered FSCI - director of Jane Smith Financial Planning
After joining the family business in 2000, Nicola qualified to provide advice in 2001, and has been a director of the business since 2006. Since the retirement of her mother (Jane Smith), Nicola bears sole responsibility for the management of the firm, and the advice provided to clients. Nicola is married to David and has two young children, Emily and Olivia, and Poppy the black labrador.