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Fund managers rally IFA backing for FSCS reform

by Michelle Abrego on Nov 08, 2012 at 09:10

Fund managers rally IFA backing for FSCS reform

It has been more than a year since the Financial Services Compensation Scheme (FSCS) landed IFAs and fund managers with a £326 million bill relating to the collapse of Keydata, but the fallout is far from over, according to the Investment Management Association’s (IMA) Guy Sears.

IFAs versus fund managers

Sears (pictured), the IMA’s director of wholesale, said the need to reform FSCS funding had its roots in the £326 million levy, which had divided IFAs and fund managers when they should be working together. The FSCS’s 2011 Keydata levy landed IFAs with a £326 million bill to cover compensation paid out to clients in collapsed investment firm Keydata Investment Services.

The size of the bill was well over IFAs’ £100 million FSCS levy limit, resulting in the remaining £226 million being footed by the next subclass in line, fund managers.

As a direct repercussion of the huge levy, the FSCS decided to pursue legal action against hundreds of Keydata-selling advisers in a bid to recoup the money it had paid out. There were also even louder calls to overhaul the scheme’s funding model.

These calls were answered in July by the Financial Services Authority (FSA), which published a consultation outlining a number of measures to alter the way the scheme was paid for.

FSCS reform suggestions

For Sears, however, the FSA’s proposals do not go far enough, and he and the IMA have backed up their gripes by publishing their own set of proposals to reform the FSCS.

‘We took what the FSA talked about, and we felt they hadn’t worked it through sufficiently,’ he said. ‘We felt what little they did discuss within the paper was so little discussed, it was just asserted in a few places.’

The IMA has proposed the use of reserve funding and three-year forecasts instead of pre-funding or a product levy, arguing the latter proposals would distort the market for funds and could make UK funds more expensive.

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2 comments so far. Why not have your say?

Charles Rickards

Nov 08, 2012 at 10:41

In the spirit of transparency, the FSCS should be paid for with an explicit charge attached to all products sold/purchased. In addition, there needs to be provision for bad advice where products were not bought, but this could be covered by a much reduced levy on advisers

There should be a consumer opt out that allows consumers to opt out of paying the charge, along with an opt out of the benefits the FSCS provides. This needs to be linked in with a credible long stop position for advice given. Effectively like the extended warranty offered on electricals.

There also needs to be a level playing field to ensure that spurious claims are not paid out without fair assessment. For too long it has felt that the provision of the FSCS has been a no cost safety net for consumers.

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Insiders Comment

Nov 08, 2012 at 13:51

Please explain in what other aspect of the law is the claimant not responsible for costs on spurious claims and the defendant has to pay an up front charge merely to be able to defend the claim and furthermore is unable to claim this fee back when proven innocent?. Like every other aspect of regulations stipulated by the FSA the adviser is always wrong and the claimant should be paid! Many claims are bought about by the simple issue that the client has lost money and is looking for a way to recoup losses although they were perfectly aware of the possible risks of loss that is present in any investment including cash and Government Bonds.The whole issue of the rugulation rules flies in the face of nautural justice and is writtent by an incompetent bunch of self serving beurocrats.

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