The Financial Services Compensation Scheme has raised a supplementary levy due to rising claims, which will raise costs for advisers and wealth managers.
This £92m supplementary levy was announced in the FSCS’s half-year report. The FSCS said it had to impose this additional levy after a 45 per cent increase in pension advice claims and a 5 per cent increase in the cost of these claims since March 2020.
It said without these additional fees being charged it ran the risk of not being able to meet future claims.
Pimfa, the trade association for the advice industry said it was “disappointed” by this increase.
Pimfa chief executive Liz Field says: “PIMFA are particularly disappointed to learn that further supplementary costs will be levied onto our membership to fund the failure of other firms.
“This means more customers have been let down and had no choice but to use the compensation scheme.
“These costs are a particularly bitter pill to swallow given the ongoing Covid-19 crisis and the impact that it continues to have on the viability of a number of businesses that make up our membership.
“Whilst we strongly support the role of the FSCS in protecting customers, this latest increase further underlines the need to urgently get these costs under control.”
Announcing this levy, FSCS chief executive Caroline Rainbird says: “I appreciate that the supplementary levy will be unwelcome news for firms against a challenging economic backdrop, and I genuinely understand the difficulty this will cause.
“We only raise a supplementary levy when we absolutely have to, when we estimate that we will not have sufficient funds to meet rising compensation costs or management expenses for the period until the next levy is due.”
She adds: “Whilst we share the industry’s concerns about rising compensation costs and increasing levies, we firmly believe there is no silver bullet and regulation alone will not solve this complex problem.
“Education of consumers plays a key role so that they are empowered to make informed financial decisions that are right for them. Our commitment to continuously innovate in our ways of working to keep our management costs as low as possible, making recoveries wherever we can and if cost-effective is also vitally important.
“And last but not least, collaboration and data sharing with our regulatory and industry stakeholders is crucial to help prevent future failures. That is why we also call for the industry to help support us by calling out bad actors and scams.
“It is still too soon to know the full effects of Covid-19 on the industry, but we must all be prepared for a challenging period in 2021.”