FCA has published a second consultation paper on PII and FSCS
Written on 10/08/2018

In December 2016 the FCA published a consultation paper aimed at discussing the FSCS and its fairness to all parties. CP16-42.This week the FCA published a second consultation on FSCS funding.

CP17-36 contains various items, but no major changes. Providers could be asked to contribute to FSCS levies on advisers, but not in any major way, at least initially.

This scheme for providers to pay for adviser levies seems riddled with loopholes, and as a result is subject to further consultation. The problem is that IFAs are increasingly becoming DFM firms anyway in order to circumvent the RDR fee only charging rules. This is the SJP model so envied by all. In the absence of any action against SJP the large firms have been encouraged to flaunt the rules by becoming providers themselves with DFM offerings and pay cross subsidy commission to their advisers. These large firms represent perhaps as much as a third of the adviser community and sit inside provider owned networks. And as more IFAs convert to DFM for the same reason, the model of a pure fee charging IFA becomes increasingly less attractive to the customer. As all IFAs know, customers don’t like writing cheques, they prefer you to write it for them (by signing a fee agreement that allows you to invoice the scheme or fund, who in turn pays the invoice.) We live in interesting times and nothing is certain.

As you will know, this scheme pays out when firms fail with claims outstanding against them. The burden is over a thousand pounds minimum per IFA per annum, with many high producing IFAs paying several thousand more each year. As a cost of trading it is, in effect, a nationalised PII scheme. Sadly it is also a rule that firms must take out PII, adding about the same cost each year as the FSCS levy!

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