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Editor’s note: Providers need to back advisers on the FSCS

By Justin Cash

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May 15, 2018
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Respite at last, after the FCA ruled last week providers must pay a quarter of advisers’ Financial Services Compensation Scheme billsfrom now on. It is a victory for the advice community, as the regulator refused to cave to a vocal provider lobby opposing the moves.

That lobby had just cause to put up a fight. Providers and discretionary managers have strong arguments here about who is responsible for the failures the FSCS ends up covering. If you simply manufacture a product, and then some adviser you have never seen or heard from before decides to put it in the hands of a client it is completely unsuitable for, then surely that’s not the fault of the provider?

The lines are a little bit more blurred between provision and distribution in areas like Sipps and platforms but the basic point remains that providers could be seen as guilty only if they have inaccurately pitched a product to advisers. As a rule, the kind of misselling that floods the FSCS with claims is from the adviser to the client, not providers to advisers. While many advisers have genuine grievances about feeling lied to over the likes of Keydata and Arch Cru, true rogue advisers know exactly how risky what they are pushing is, they simply don’t care because of the fat marketing fee at the end of it.

Some advisers wrote in to the FCA’s consultation asking for 75 per cent contributions from providers which, even on a very generous interpretation of how much fault they actually have shared in infamous collapses, sounds unreasonably steep.

The vast majority of providers opted to stay quiet when the new rule was announced, choosing not to weigh in with any reaction at all. The Association of British Insurers took a good few hours to respond before delivering just two pithy sentences to the effect of: we still disagree.

But the fact is, there is some advantage to be gained for providers who support paying more towards the FSCS.  Aegon is the only provider I have seen to have proactively come out and clearly stated that it should share in the burden with advisers. It began lobbying for this in the very early stages of the current multi-year FSCS funding review.

Regardless of whether I agree that providers should pay up, this is an excellent marketing strategy that should have been followed by more manufacturers. It clearly positions Aegon as the friend of advisers, willing to take a financial hit even though, strictly speaking, it doesn’t feel it has earned it. It is a unique selling point in an increasingly crowded investment and pension provision space, and recognises the fact that intermediated distribution is far more lucrative today than direct-to-consumer services.

Whichever way you cut it, the FCA has made its decision now. Providers should embrace that fact, not fight it.

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