Advisers are beginning to assess the impact of how the latest Financial Services Compensation Scheme (FSCS) levy will impact their business.
In a letter sent to staff this morning, Martin Bamford, managing director of Informed Choice, said the £60m levy is one thing: "absolutely soul destroying"...
"Our FSCS Interim Levy arrived this morning. The price we are paying this year for the failure of others is £10,139, so broadly the same as the bill we received this time last year.
Whilst the interim levy this year at £60m is ‘only' 60% of the interim levy raised last year, our tariff income for investment activity grew by 56.2% between 2009 and 2010, which are the years on which this levy is based.
This interim levy relates to the costs of claims for MF Global, Keydata, CF Arch cru and Wills and Co, among others. MF Global claims alone are expected to account for almost £27m this year.
In addition to this interim levy, we will have a share of a further £22m to pay in the summer when the main annual levy is invoiced. There is also scope for a further interim levy this year of up to £18m before it tips over into the fund management sub-class for them to pay a share.
At £10k, this invoice represents around 1% of our expected turnover and around 10% of our expected profit this year. It's a bit like being told to work incredibly hard for 40 days and then to hand over the results of all that hard work - absolutely soul destroying.
On a positive note, we are at least a profitable business with no debts and sufficient capital reserves that such an event does not create an immediate financial problem. I suspect there are lots of IFA firms in a very bad position this week as a result of their invoice. 30 days to pay and the bill is automatically deducted from our bank account.
It goes without saying that we all need to contribute to this exceptional item by working harder, keeping costs down and charging the proper amount for the work we do.
The FSCS is an important piece of the jigsaw when it comes to providing consumer confidence. The way it is structured and funded is flawed, so we will continue pushing for a reform of the system. Our preferred outcome is a pre-funded FSCS with an explicit product levy based on the risk profile of the product/fund being sold."
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