The Personal Finance Society has welcomed the FCA’s freezing of 2020/21 fees for small firms but warned that the Coronavirus outbreak could force up compensation costs and hit advice firms hard without major reform.

The Chartered Financial Planner professional body was positive about the FCA’s recognition today of the “financial pressure” the Coronavirus outbreak was causing advice firms.

However, the 40,000-member body also warned that the current method of funding consumer compensation was “unsustainable” and needed a “complete overhaul.”

Keith Richards, chief executive of the Personal Finance Society, said: “Given the impact of Covid-19, it is important that the FCA continues to recognise the financial pressure being placed on advice firms."

In its 2020/21 Business and Fees Plans announced today the FCA proposes freezing minimum fees for 71% of the smallest financial firms and limiting the overall fee increase to 1.6% for the A13 advisory arrangers, dealers or brokers group.

Mr Richards added: “It is also good to see the regulator consulting on a communications and information campaign to tackle areas where they see real risk of consumer harm. The Personal Finance Society raised the need for this campaign in its initial COVID-19 discussions and recommendations.  

“We believe it is time for a united consumer campaign rather than a regulatory warning against scams or the sign-posting of FSCS, as this alone may further erode the public’s confidence and trust in the sector, and could further push them into the path of fraudsters. Government, regulators, and the regulated sector need to work together to better engage, inform, and empower people to make the right decisions about their current and future financial wellbeing.”

Mr Richards said consumer education was key to delivering better outcomes and he was encouraged that the FCA had tested a pilot campaign.

He said the PFS was also keen to learn more about how the work of the Money and Pensions Service will “dovetail” with the education programme planned by the FCA to ensure the FCA and MAPS were working together to manage resources efficiently.

He said given that calls for recompense were expected to rise it was understandable that the levy for the Financial Ombudsman Service and Financial Services Compensation Scheme were still rising however this will place an “additional burden” on firms.

 He added: “The current method of funding consumer compensation is unsustainable and we are again calling for government intervention for a complete overhaul. To achieve this, we must remove the volatility and uncertainty around the availability of professional indemnity insurance and the Financial Services Compensation Scheme levy.”

He repeated previous PFS calls for a “pooling” of the cost of compensation by using a levy based on funds under management.