A possible increase to the Financial Services Compensation Scheme levy next year has been labelled a "disappointment" for competent financial advisers.
In its Outlook document published this morning (November 9), the lifeboat scheme forecast that its levy would rise to £415mn in 2024-25, with advisers set to contribute £140mn - an increase from £101.1mn in 2023-24.
Mark Ormston, director of propositions and corporate partnerships at Retirement Line, said the projections would not be pleasant reading for the advice market.
“The Outlook report makes it pretty clear there are delays in decisions being made and in compensation payouts, especially under the LDII class,” he explained.
“This has a noticeable impact on next year’s current forecasting.”
He added: “Throughout the report, there are multiple references to recoveries and higher-than-expected surpluses, albeit these higher-than-projected surpluses are because of the delays. As a result, the report shows an awful lot of funding being retained (again because of the delays). In my mind, this all results in what I would call ‘fund shuffling’, as a cycle is formed.”
Ormston said with this in mind, he was “optimistic” the levy projections may not come into fruition.
“It would feel unfair to see advisers paying out while surpluses (and investment gains being made on those surpluses) are available,” he said.
Amit Mehta, director and chartered financial planner at Nightingales Wealth Management, said the increase to the levy was a “disappointment” for competent financial advisers.
He said: “This was evident in the recent case of Geoffrey Armin, who earned £2.2mn in client fees, for which the FSCS had to pay out £4mn in compensation and only recovered £200,000 from Armin.
“The levy has been increasing for a number of years, coupled with the rising cost of running a financial advisory business, which has led to higher fees for our clients. In turn, our clients are also being penalised for the actions of incompetent advisers.”
In addition, one FTAdviser reader called the figures shameful and asked: “Who is fighting for small advice firms? A 40 per cent increase in our levy is a rather steep increase.”
No additional levies
Elsewhere in its outlook, the FSCS confirmed this year's levy would remain at £270mn, as forecasted back in May, with no additional levy from firms for the rest of the financial year.
Total compensation costs for the year are now forecast at £435mn, which is £36mn less than forecast in May.
Simon Harrington, head of public affairs at adviser trade body Pimfa, said the existence of the FSCS and the protection it provides “remains a fundamental part of the financial services landscape” but he said it was also a “significant financial burden and barrier to growth for firms in this sector”.
