21st January 2011

Please, Sister Morphine, turn my nightmares into dreams

Firms in the FSCS's investment intermediation sub-class are likely to have to pay an interim levy of �£93m in just 30 days, to cover the cost of claims against investment firms including Keydata say IFA online.

Including firms in the investment fund management sub-class, the total interim levy for 2010/11 will likely hit �£326m and this will be made up of �£7m management expenses and �£319m compensation costs.

This is of course bad news, in particular for small IFAs who could be forgiven when considering the unfairness of their lot recalling the Jagger/ Richards lyrics “it just goes to show things are not what they seem. Please, Sister Morphine, turn my nightmares into dreams”.

This call will cause havoc with capital adequacy and cash flows in already difficult times and see the end for some IFA businesses who “know in the morning” their businesses will be dead because they cannot pay any more for compensating losses that should not be applicable to their sub-class.

It is correct that there should be a place of last resort that consumers can refer to, in this case it is the FSCS. But, is it right that with all these demands being (in the eyes of many) unfairly placed at the door of IFAs that the FSCS now seem to be keen to be seen as a ‘Brand’ given the proliferation of adverts being screened and viewed on huge billboards around the country.

I can only assume that this is covered in the �£7m management cost element?

This seems to be a very cavalier spend to many IFAs as the processes for referring a matter to the FSCS are quite straightforward and do not need to be bolstered by such methods that smack of some of the worse aspects of the last “New Labour Nanny State Ministry of Information” adverts.

Nic Cicutti in MM is correct in saying “what we are seeing is a massive bill for IFAs caused by regulatory inefficiency, coupled with a refusal by the FSCS to understand that when a firm walks like a duck, looks like a duck and quacks like a duck it really is a member of the Anatidae bird family and not something else entirely different”.

I think Ian McIver summed the whole thing up very well “All on a technicality. It's a joke I don't care what the recent judicial review outcome was. It's ridiculous that a product can be placed into the adviser share rather than the provider share. This will make some adviser firms go bust so they in turn then have liabilities falling to the FSCS - and then a spiral starts. Eventually there will be 3 IFA's left sitting down the pub deciding how they are going to afford a bill of �£30m each!! Ridiculous”.

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