Question
Why aren't IFAs revolting?
As I understand it the FSCS is funded by a levy on financial advisors (amongst others?) and the FSCS covers investments regulated by the FSA. Despite employing 3,300 people at a cost of £450,000,000 the FSA has failed to prevent many failures and frauds which have have caused billions to be paid in compensation by the FSCS.
So IFAs foot the bill but do not have a say in the regulation. Why do they put up with such an unjust system? If they are to pay the compensation surely they should be running the regulation.Answer
Based on recent questions there’s no shortage of people who find financial advisers revolting!
But, joking aside, a large number of IFAs probably feel hard done by at the moment. The ballooning costs of running the Financial Services Authority (FSA) and paying compensation via the Financial Services Compensation Scheme (FSCS) have led to increases in the levies that IFAs have to stump up as their share of the overall cost.
And it’s the FSCS levies that are especially contentious at present. The FSCS wants to charge ‘investment intermediaries’ (which includes IFAs) £70 million to cover claims relating to the demise of structured products provider/administrator Keydata and a couple of stockbrokers. That the FSA is categorising Keydata as an investment intermediary and not a product provider doesn’t make much sense to me. There are technical reasons why they might, but common sense says it’s wrong. I think it’s also fair to criticise the FSA for not spotting and subsequently nipping problems such as Keydata in the bud.
However, IFAs are not blameless. As an industry they’ve done plenty of things over the years that haven’t been in consumers’ best interests, incurring the wrath of both the FSA and customers. Plus it’s up to an IFA to carry out sufficient due diligence before recommending a product to clients (the Arch Cru funds fiasco being a good example – Keydata possibly less so as fraud is sometimes hard to foresee).
I think a lot of IFAs are up in arms and keen to revolt against this recent levy, but they lack a single representative with the necessary clout to make a difference. The closest is the Association of IFAs (AIFA), but in my view their voice probably isn’t strong enough to really change much. And, let’s face it, if you’re a good, honest, successful IFA why would you want to join a trade body that might also represent the interests of less salubrious advisers in the industry?
The whole situation is a shame as putting IFAs under increased financial pressure is really in no-one’s best interests – if the trend persists it could drive good ones out of the sector and motivate dishonest ones to make up the shortfall via excessive commissions or fees.
I don’t think I’d want to see IFAs running the FSA, but I share your view that the FSA should put its hands up and share some of the blame and, perhaps, financial pain. It's a travesty that government bodies are rarely held to account – at least in any way that makes a tangible difference.
Why aren't IFAs revolting?
As I understand it the FSCS is funded by a levy on financial advisors (amongst others?) and the FSCS covers investments regulated by the FSA. Despite employing 3,300 people at a cost of £450,000,000 the FSA has failed to prevent many failures and frauds which have have caused billions to be paid in compensation by the FSCS.
So IFAs foot the bill but do not have a say in the regulation. Why do they put up with such an unjust system? If they are to pay the compensation surely they should be running the regulation.Answer
Based on recent questions there’s no shortage of people who find financial advisers revolting!
But, joking aside, a large number of IFAs probably feel hard done by at the moment. The ballooning costs of running the Financial Services Authority (FSA) and paying compensation via the Financial Services Compensation Scheme (FSCS) have led to increases in the levies that IFAs have to stump up as their share of the overall cost.
And it’s the FSCS levies that are especially contentious at present. The FSCS wants to charge ‘investment intermediaries’ (which includes IFAs) £70 million to cover claims relating to the demise of structured products provider/administrator Keydata and a couple of stockbrokers. That the FSA is categorising Keydata as an investment intermediary and not a product provider doesn’t make much sense to me. There are technical reasons why they might, but common sense says it’s wrong. I think it’s also fair to criticise the FSA for not spotting and subsequently nipping problems such as Keydata in the bud.
However, IFAs are not blameless. As an industry they’ve done plenty of things over the years that haven’t been in consumers’ best interests, incurring the wrath of both the FSA and customers. Plus it’s up to an IFA to carry out sufficient due diligence before recommending a product to clients (the Arch Cru funds fiasco being a good example – Keydata possibly less so as fraud is sometimes hard to foresee).
I think a lot of IFAs are up in arms and keen to revolt against this recent levy, but they lack a single representative with the necessary clout to make a difference. The closest is the Association of IFAs (AIFA), but in my view their voice probably isn’t strong enough to really change much. And, let’s face it, if you’re a good, honest, successful IFA why would you want to join a trade body that might also represent the interests of less salubrious advisers in the industry?
The whole situation is a shame as putting IFAs under increased financial pressure is really in no-one’s best interests – if the trend persists it could drive good ones out of the sector and motivate dishonest ones to make up the shortfall via excessive commissions or fees.
I don’t think I’d want to see IFAs running the FSA, but I share your view that the FSA should put its hands up and share some of the blame and, perhaps, financial pain. It's a travesty that government bodies are rarely held to account – at least in any way that makes a tangible difference.
Read this Q and A at http://www.candidmoney.com/questions/question157.aspx
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