Carl Lamb: FSCS costs push advisers to breaking point


I have always been a supporter of tighter regulation and the cleaning up of our industry. Greater transparency and protection for the client is hugely important and the loss of some of our community’s less professional players has certainly been for the good. However, it is becoming increasingly clear that the way we provide protection for clients and pick up the pieces when things go wrong is just not working any more.

Why do I feel that way? I (along with every other IFA firm principal up and down the country) have just received my latest bill from the FCA. Shockingly, I have seen a staggering 116 per cent increase on last year. And I am not alone. One principal with whom I have spoken reports an increase of 319 per cent since 2013.

Firms simply cannot sustain that level of input. Of course, the problem will escalate as the impact bites: every increase knocks a few more firms out of the industry, leaving the increasing demands of the FCA and the Financial Services Compensation Scheme to be shared out among fewer and fewer companies.

We have seen that the FSCS is paying out more amounts of compensation to clients of investment firms who have gone out of business: an increase of 156 per cent in the year 2014/15. Yes, these cases must be compensated but the issue I have is with the direct relationship between the compensation fund and advice firms. 

At the end of the day, it is the client who ends up paying, with increased costs being passed on as increased fees. Every firm principal I have spoken to has confirmed they have been forced to raise fee levels. The days of unscrupulous advisers reaping “fat cat” profits are long gone. Margins are now tight and the day is getting close when the remaining good firms decide there is no chance of continuing to be profitable without making advice unaffordable.

I am tired of being held responsible for compensating clients of bad firms who have let them down in the past. What other industry expects those who have obeyed the rules and played fair to stump up the cash to help the customers of those who were less honourable? It is the dynamics of the madhouse.

It is time to throw away the broken model and start again. There needs to be a fresh, innovative approach to planning ahead for the industry so that advice can remain accessible to all without penalising those who work hard to deliver a transparent and professional service. It is no exaggeration to say the advice sector has reached a tipping point. It will only take a little more pressure to send it crashing over the edge.

From my side of the fence, the most sensible solution seems to be to impose a levy on each policy or plan sold. Others may have alternative suggestions but let us at least have that debate. And let us do it now, while we still have an advice sector to save.

Carl Lamb is managing director of Almary Green.