Some 45% of PIMFA member firms have reported increases in their FSCS levy bill of more than 100% in the last five years, a survey for the wealth manager trade body has revealed.
More than four-fifths (82%) said that FSCS costs now accounted for at least 20% of all outgoings, excluding payroll and accommodation costs.
The survey also found that nearly two-thirds (64%) of advice firm owners do not trust the Financial Services Compensation Scheme (FSCS) to deliver “fair outcomes” for consumers or firms.
The survey of 84 business owners and chief executives of member firms reported that levels of trust in the FSCS have remained unchanged, or have not improved in the past five years for 60% of firms.
In addition, the survey found that over a quarter (26%) of firms reported PII premiums had increased by more than 100% in the last five years and over half (56%) reported their current PII premiums contained restrictions, including on historic Defined Benefit transfer advice.
Less than a fifth (17%) of firms described themselves as confident of being able to secure PII terms that were affordable in the next 12 months.
Following the results of its member survey PIMFA is urging the FCA and the Treasury to work more closely with firms to “rebuild trust” in the FSCS.
Liz Field, chief executive of PIMFA, said: “The FSCS plays an absolutely vital role in protecting consumer savings and we recognise that the trust it engenders for consumers has a benefit to our firms.
“But the results presented in this survey point to a wider disconnect between a profession, which seeks to deliver the best possible outcome for consumers, and a regulatory system that most firms see as providing inadequate support at best, or failing both consumers and firms alike at worst.”
Commenting on the research, Caroline Rainbird, chief executive of FSCS, said: “We recognise the problem that rising costs have for advisory firms against a challenging economic backdrop. While there is no simple solution to what is a complex problem, we take a three-pronged approach to minimise the elements of the levy that FSCS can control. The first is our efforts to continually innovate so that our management costs are as low as possible, which is shown by our like-for-like claims handling costs falling by 8% in 2019/20.
“We make recoveries wherever possible and if cost effective, and have recovered £375m over the past five years. Finally, under the Prevent work stream in our five-year strategy, we collaborate with our regulatory and industry stakeholders to help prevent future failures and drive better outcomes for consumers, with a view in the longer term which in turn leads to lowering future compensation costs and therefore reduced levy bills for advisers.
“We know that consumers have a high level of trust in FSCS and we want this to be mirrored by the advisory community. We are completely aligned with PIMFA in their view that every consumer who has to use our service has suffered a negative experience that they would subsequently like to have avoided.
“It is crucial to tackle the root causes of the problem, not just the symptoms, as this will lead to a sustained reduction in the levy and more relevantly for all concerned – including the industry – an increase in good outcomes for consumers. We will continue to meet regularly with all parts of the industry, including PIMFA, to help achieve these two important elements.”