It’s been quite the year for advisors and the FCA.
During the first few weeks of 2020, more Financial Services Compensation Scheme (FSCS) levy demands began hitting financial advisers, and the topic of FSCS reform hit the news again. This ignited the discussion for FSCS reform amongst advisers.
Plus, the news of 13 BSPS firms going bust at the end of last year reinforced the case for FSCS reform, and stirred the pot once again firing up the age-old debate within financial circles - how much power should the regulator have on issuing levies, are they doing enough to protect those who play by the rules, and are they doing enough to punish those who are giving out bad financial advice?
You may hear it in the news, from individuals across many financial verticals; complaints about the regulator (as FSCS charges are decided by the Financial Conduct Authority (FCA)) - how they slow work down, how they stifle innovation and creativity - and on the flip side, how they aren’t doing enough to protect all concerned. By reading the news and talking to others in the industry, it looks as if the regulator is in a tough spot, and caught in the middle of being too proactive or not reactive enough.
We all know how regulated the financial industry is, and at Akoni, we believe that regulation is fundamental when carrying out financial services, and in the end, actually a good thing for all parties. We see it, not only as part and parcel of conducting financial services but also as providing significant reassurance to clients who want to know that if the worst was to happen, clients, in the end, are protected by a third-party.
Just a few bad players can have a harmful knock-on effect on the whole industry causing distrust amongst firms and their clients. The regulator, at the end of it all, is here to protect the end consumers who do not possess the financial knowledge, but who want to participate in creating wealth on the advice of regulated advisors.
The real issue here is that the current FSCS funding model is well and truly broken, with little to no real growth over the last decade. It seems to punish advisors and doesn’t discriminate between those who do right or wrong.
One incident, early last year, in the first weeks of the pandemic, involved a London-based adviser who had had enough and wrote to his MP asking for parliamentary attention to be given to the increased levy. This gained traction via Twitter and resulted in the Personal Finance Society (PFS) spearheading a campaign to reform the levy, under the heading 'The good guys shouldn’t pay.' Trade associations, PIMFA and Penney Financial Partners also voiced their support for the campaign.
The issue was brought to the attention of UK politicians as soon as it became clear that more support for advisors was needed. However, politicians quickly stated that this was an issue governed by an external non-governmental body, therefore the challenge is with the FCA.
Furthermore, last year, PIMFA called on the Government and the FCA to "urgently reform" the supervision of financial advice and consumer compensation through the FSCS. As a result of many situations surrounding the FSCS levy debate, there was a call for input from the FCA that explicitly asked advisers in late-2020: “What do you think should be done to ensure the polluter pays for unsuitable advice?”.
However, the issue is not clear cut, and there seems to be a lot of back and forth on who should be paying these levies. There is a demand for more stability and clarity around what is considered by some advisors as ‘spontaneous increases’ around the payment amount, with some advisors saying they cannot plan for, or forecast the amount as the value changes constantly and can appear out of nowhere.
It’s 2021, what’s the update on the FSCS levies?
The FSCS announced its 20/2021 levies in May 2020, stating: “FSCS will levy firms £649m this year, £14m more than was forecast in its Plan and Budget 2020/21 that was published in mid-January. This includes an amount of £74.7m for management expenses which are the costs of running the Scheme”.
According to the FSCS’ Outlook Newsletter in November 2020, several things drove up the levy including “firms failing which contributed to a rise in compensation FSCS pays out”.
However, the FT Advisor-dubbed “UK lifeboat scheme” was said to need more than £1 billion from the industry to cover the cost of compensation for the coming year, maxing out the advice sector’s limit for the second year running.
This has been attributed to a tough year for firms on the backdrop of the coronavirus pandemic, leading to an increase in firm failures, pushing the levy up to cover the costs.
Amid increasing levies, there is good news, according to the FT Advisor, the FSCS revised their supplementary levy for 2020/21; down £14m to £78m: “In November 2020, the scheme said it was forced to raise a £92m supplementary levies following an increase in pension advice claims and other high profile firm failures, such as London Capital and Finance. But today the FSCS said there had been fewer LCF claims upheld than originally forecast in November 2020, and it could therefore knock down the cost”.
There are many ways to bring down the levy, and bring clarity to these sudden cuts and increases. This includes more open communication with the industry, financial education for consumers to help them make more informed, better decisions - this falls squarely on the shoulders of both the firm and the regulator - and firms should highlight the risks through plain, non-jargon messaging that is easily understood by everyone.
The FSCS also added in its report that excluding firms and individuals involved in multiple failures from the industry, and exploring how to prevent unsuitable high-risk products from being sold to mass-market consumers can help bring down levies too.
In the end, we are all trying to do right by the consumer, although it seems to be punishing the majority not the minority of bad players when the consumer gets fair compensation. Therefore, we need to be more proactive, and understand that the onus is on all of us including the regulator to improve awareness between the advisor and the consumer, the regulator and the consumer, and between the advisor and the regulator to ensure that we are all working together for the benefit of everyone.
So, why should you choose Akoni to help you with your client’s cash decisions?
1) Safe and secure with FSCS protection
All deposits are held with each bank providing protection of up to £85,000 per bank, or up to £1 million for Temporary High balances.
2) Diversifying risk (spreading money across savings providers)
With the option to spread cash across several providers on the Akoni Cash Management Platform, you can diversify risk, and increase the chances of positive returns.
2) Increased returns & Better interest rates
In a climate of economic uncertainty, and with interest rates being cut across many providers, it’s not easy to find decent interest rates in a simple way. With Akoni, you can find competitive interest rates to suit your client’s specific needs.
4) Quicker, and hassle-free - no form filling
Akoni Hub provides a hassle-free cash management experience - your clients can onboard and open an account online with no fuss. Clients will only need to complete one AML/KYC process, can switch between providers, and manage their account on the Akoni Cash Management Platform in just a few clicks.
5) White label Adviser portal and tools
You have the flexibility to create a platform that works for you and your clients. Add your branding to showcase who you are through a sleek, professional cash management platform designed with you in mind.
Find out more about Akoni: Akoni is an award-winning UK cash platform, which provides a marketplace to financial advisors and wealth managers through a bespoke white-label offering, or off-the-shelf offering. Akoni uses innovative technology to personalise cash planning solutions for clients, and also provides a full API solution to banks and insurance clients.