Multiple advisers continue to believe a product levy is the fairest way to calculate the FSCS levy, despite the FCA effectively ruling out the option back in December.
Responding to the Financial Services Compensation Scheme's (FSCS) confirmation of this year's levy published on Wednesday, advisers argued the problem of "ridiculously high" levies could only be solved by basing fees on the products sold.
The FSCS will levy firms £363m this year, representing a £15m reduction on its January forecast, but amounting to £26m more than it levied for 2016/17. Pension advisers will contribute £100m to the levy, while investment advisers will pay £88m.
Although the Financial Conduct Authority (FCA) effectively ruled out the introduction of a product-based levy in its consultation paper on FSCS funding back in December 2016, advisers appear unwilling to accept the ruling.
Informed Choice managing director and IFA Martin Bamford described the upcoming fees as "a ridiculously big amount", which was "a reflection of failed regulation".
He argued a product levy would be a fairer way to bill the industry, as it would be putting a levy onto higher risk products at the point of advice.
He said: "High FSCS levies are the new normal. They've had enough time to sort this issue out and get on top of people that are causing such big compensation payments to be paid."
Levy 'out of hand'
Nexus IFA adviser Ian McIver said most IFAs would be "screaming" that the levy was out of hand.
"[The levy] seems to have lost its way over the years. Too many advisers are getting lumbered with things like product failures and unregulated advice, all of which seem to have entered the equation of how the FSCS levy is calculated," he said.
McIver added: "A product levy should say if the product falls over, it's liable - simple as that. Everyone is screaming for some way of saying ‘stop' - it isn't that we don't need some form of compensation, it's just a case of how it's funded."
Other ways to link levy to risk
Personal Finance Society chief executive Keith Richards had also spoken out in favour of a product levy in the past.
He said in December he was disappointed about the FCA's apparent decision to rule the option out but suggested the regulator was ready to look at "other ways [the levy] could more clearly link product risk to FSCS charges."
The regulator had initially shied away from a product-based levy because its introduction would fall under a "pre-funding" model whereby the FSCS would have to build up a reserve for future claims, something it does not currently do.
However, the regulator appeared minded to explore whether firms should pay a premium on FSCS levies if they distribute products the regulator considers to be 'higher risk', in the form a risk-based levy - an option backed by the Financial Advice Market Review (FAMR) in March last year.
This could include products that have been linked to past FSCS claims or those FCA-authorised firms are prohibited from selling to ordinary retail customers, it said.
"In the future, firms could be expected to cover a greater share of the FSCS levies if a significant part of their income comes from the sale of high-risk products and/or high-risk activities," the FCA said in its consultation. "Or, conversely, firms could be eligible for a discount if their behaviour reduces risk."
Regulator must be proactive
Meanwhile, Intelligent Pensions marketing director Andrew Pennie said he was particularly concerned that the body was expecting a lot of pension-related claims to come through.
The FSCS reiterated on Wednesday it had seen an increase in the volume of claims related to self-invested personal pensions (SIPP). It said it would keep the sector under review and, if necessary, raise a supplementary levy later in the year to cover any extra costs.
Pennie said: "Those people that shouldn't be transferring out of occupational schemes, and those people that are transferring into very risky assets, it's those high risk assets that worry me.
"I'd like to see the regulator be more proactive about those high-risk investments rather than a reactive compensation thing, which it always seems to be. I think a product levy would be more appropriate for those high risk investments."
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