The Association of IFAs says the FSA's bid to overhaul the funding process for the Financial Services Compensation Scheme would be "the best outcome" for most advisers.
The regulator has proposed a radical revamp of the current process, scrapping the ‘pay as you go’ system and making advisers pay a levy based on the income they earn from specific types of business.
Under the proposals, the FSA suggests the capacity of the FSCS needs to widen to build a fund of up to £4.4bn a year so increased levies will be required, albeit the FSA then intends to limit the annual levy.
Tracey Mullins, director of communications at Aifa, says advisers would be delighted as they could now pay substantially less.
“We’re delighted with the proposals,” she says.
“This is the best outcome for our majority of our members. It is fairer, sustainable and a more robust scheme.
“Although it is difficult to do so given we are going from number of people to turnover, comparing on a like-for-like basis, the bill of 05/06 meant A13 firms currently paying £1434 will in the future pay £520 for pensions business conducted and £217 for investment-related business.
“That’s a bill of £737, and means firm should be around 50% better off.”
Mullins says the current system has its objectors and needed addressing.
“It [the proposal package] recognises mutual responsibility for mutual financial interests,” she adds.
“We advise on [providers’] products and they still make money from them when firms go bust. We all agree the compensation scheme as it existed needed changing, and this is fairer.”
The FSA believes the creation of a system which requires the higher levels of funding be borne by the wider community should “make the funding of the compensation scheme fairer”.
Director Graeme Ashley-Fenn says: “While it is not possible to devise funding arrangements which will command universal support from the industry, there was general acceptance that the present arrangements were no longer fit for purpose.
“We believe the proposed model is more rational, fairer to the various players in the market and more robust. The proposed system will be capable of meeting current issues such as endowment mis-selling, but more importantly, will now provide compensation for the 'unknown unknowns' – the future potential compensation claims which no-one has yet thought about.”
Responses to the FSA consultation must be submitted by June 20th, 2007.
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