Compensation scheme must be divided more fairly says AIFA

Chris Cummings, director general of the Association of Independent Financial Advisers says the Financial Services Compensation Scheme is a “vital regulatory safety net” but the costs must be divided more fairly in order to “maintain the industry’s confience in the scheme”.

Cummings says: This year, the IFA sector will be billed for 47.5m up from 3.9m just four years ago. The smallest firms in the financial services industry are being asked to pay the lions share of the funding of the FSCS.”

How can this system be just? Bearing in mind that the main reason for the
increase in the levy for IFAs is the continuance of a large volume of
complaints about mortgage endowments, surely a fairer way to meet these
costs would be by dividing them between all the firms who have financially
benefited: those insurance companies that designed the products as well as
those IFAs who advised their clients in good faith.”

The increase in the bill this year means that most IFA firms will be paying
between around 1300 – 1400 per adviser. AIFA secured payment of the levy by instalments in 2005 and this should help spread the pain and we also
secured better rates for our members.

But this must be the last time that IFAs are subjected to such an
inequitable system. The current Scheme is unsustainable and AIFA is
determined to secure a more proportionate division of costs. After all,
many life companies are still earning profits from the very policies which
clients are now complaining about and which IFAs are having to pay
compensation on.”

Cummings adds: We are now focussing our efforts on working with the FSA to improve the funding mechanism by securing a fairer and less volatile system which is sustainable over the longer-term. In order to achieve this, we need the support of members and the co-operation of providers. This is not an IFA problem; it affects the whole industry.”