The Financial Services Compensation Scheme is expected to send IFAs a bill for £9m next year just for endowment compensation claims, in its overall regulatory levy, IFAonline can reveal.
The levy will be aimed at IFAs in the A12 and A13 contribution bands but, says the FSCS, the majority of those IFAs footing the £9m expected shortfall will be the smaller IFAs in the A13 contribution band.
The Association of Independent Financial Advisers has been working behind the scenes in recent weeks in order to negotiate a settlement which will enable IFAs to pay the additional bill.
This additional charge will now be added to next year’s levy, and IFAs will be able to pay in instalments, if they choose to do so, as part of the overall combined invoice they will received from the Financial Service Authority (FSA), Financial Ombudsman Service (FOS) and FSCS.
The FSCS confirmed three weeks ago there was a shortfall in this year’s levy charge but Heather Tilston, head of communications at FSCS, disputes the £9m figure and says the additional charge has not been finalised.
That said, she admits it is likely to be in the region of between £4m and £10m. Tilston says: “What we are doing is alerting the industry to the fact that we have had more [endowment] claims than expected and that will have an impact on the amount of funds that we will need to process and pay claims.”
Chris Cummings, director general of Aifa says in the its discussions with the FSCS, the Association was told the additional levy charge would be around £5m to £10m but “within the top end of that.”
Tiltson adds that £37m has been raised to process and pay compensation claims this year alone. Were the additional £9m added to this amount this year, as had been discussed, that would have taken the figure up to £46m. Based on the number of registered firms, numbering around 4,600 in the A12 and A13 contribution bands, the additional amount payable by each firm would be around £2000 depending on the number of approved persons within the firm.
At present, the average payout for an endowment mis-selling claim is £2,300 with around 39% of all claims leading to a compensation payment. There have been far more endowment complaints this year than the 7,000 originally predicted by the FSCS, with the Scheme now saying that it expects to have received around 22,000 mis-selling complaints for endowments alone by the end of the year.
The news suggesting IFAs would have to pay a further £9m next year to cover the shortfall was met with dismay by Alan Lakey, partner at Highclere Financial Services, who predicts the rise in the additional cost could put already under pressure IFAs out of business.
"I have spoken to many IFAs who tell me they are just hanging on and all they need is a bit more additional cost and to lose one or two clients to push them over the edge," he says.
"It's also bad news for advice because in its quest to protect consumers the regulator is going to leave them with only bank assurerers and the large networks who can pay the additional costs but may not be as independent," adds Lakey.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email [email protected].IFAonline
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