Five years ago today, I launched an online petition calling for fairer funding of the FSCS.

By mid-afternoon on the same day, that petition had amassed more than 1,000 signatures from Financial Planners supporting our call for reform. By the end of that day, the petition (which was only open from 8am to 10pm) had gathered support from 1,421 people and was delivered to the Financial Secretary to the Treasury.

The petition was prompted at the time by an interim levy of £60m on the investment intermediary sector, to pay for the failures of several firms, including Keydata. We asked for better categorisation of firms within the FSCS funding system and greater awareness of the funding methods of the compensation scheme.

Only a year earlier, a similar petition I organised only received 678 signatures, despite running for a fortnight. As FSCS costs increased, so did strength of feeling in the Financial Planning community.

Yet here we are, five years further down the track, and nothing has changed. If anything, the situation has become much worse.

Earlier this month we learned that advisers will have to find a collective £100m this year to pay for the failures of others. Worse still, we are likely to face an extra interim levy later in the year.

There was a little ‘good’ news hidden in the announcement, with the estimated costs for SIPP-related claims falling from £163m to £146m. But the initial levy of £100m hits the threshold for the sector, which means the supplementary levy later this year to make up the shortfall is very likely.

The FSCS continues to publish lists of firms in default on a regular basis. Occasionally, firms included on the default list are those which had their assets acquired by consolidators and dumped their liabilities on the rest of us. Despite burdening their peers with ever higher FSCS levies, the individuals behind these firms continue to advise clients and gather assets unimpeded by the regulator or our professional bodies.

I don’t blame the FSCS for any of this, by the way. They have a statutory role to play and are simply following the rules. Within the levy, we’re paying a scary amount of management expenses, totalling £69.2m for 2017/18, but when you’re spending other people’s money, it’s pretty easy to allow the cost of running the show to become excessive.

Where I do point the finger is at the Treasury and the FCA.

The Treasury should be doing more to restructure the funding of the FSCS, finding a way to make sure the polluter pays. It was disappointing to see a product-levy ruled out of the latest funding review, as this is surely the fairest way to attach a risk-based levy to various types of product and advice. But more pressing is the need to make sure relevant types of business pay for different categories of compensation.

Back in April 2012, we struggled to get our heads around the concept of IFA firms paying for the failures of an investment manager or promoter like Keydata. Our business has zero resemblance to theirs. Yet we all fall into the ‘investment intermediary’ category. A similar issue is arising with SIPP providers and pension advisers; two distinct business types with very different business models and risk profiles, both bundled into the same funding category.

The FCA have a role to play here because high and rising FSCS levies are a direct reflection of failed regulation. If the FCA intervened earlier, perhaps making better use of all of that data they receive twice a year from intermediaries, then this bad advice could be curtailed and levies dramatically reduced.

Better still, why don’t the professional bodies propose something radical and create a system of self-regulation to help deal with this? When the Retail Distribution Review was introduced at the end of 2012, the new rules required a Statement of Professional Standing be issued and maintained by advisers. This means the system for regulation at professional body level already exists, but rarely appears to be used in any meaningful way.

FSCS levies hurt our profitability. More importantly, they put up the cost of advice for our clients at a time when advice is becoming unaffordable for more people. Unless and until we get some meaningful reform which results in FSCS funding being cut down to a more manageable level, every levy and default announcement is a disgrace for the financial planning community.

Martin Bamford CFPCM Chartered MCSI FPFS
Chartered Financial Planner & Chartered Wealth Manager
SOLLA Accredited Later Life Adviser
Managing Director, Informed Choice