When trawling through Professional Adviser for suitable nuggets of juicy news to disseminate to our members (with my obvious sarcastic angle!) I hit upon a subject that always receives a negative groan from any adviser, the FSCS Levy.
Now for those of you that don’t know what this is (tut tut, finger wag!) the Financial Services Compensation Scheme (FSCS) is designed to offer a financial buffer fund to retail investors (for the most part), it is never a source of glee amongst advisers, especially those that have never had a client need to go to the FSCS. However there has recently been an increase in the use of this “Lifeboat” fund in the wake of failed SIPP schemes, Brooklands Trustees, Stadia Trustees and Montpellier Admin Services to name three.
And one of the most recent pay-outs concerned the Lifetime Sipp, with over 300 pay-outs to customers that had lost money in yet another failed SIPP (which included the failed Harlequin scheme).
So the FCA is to increase the total levy bill to firm to £532 million (a £16 million increase).
But my article is not about this in reality, with our increasing litigious nature in this country (we will claim against anyone now it seems for anything!) it reminded me of one of the founding ethics of the advisory business, “Uberrima Fides”……. Utmost good faith (no it’s nothing religious)
Go on be honest, how many of you have no idea what I am talking about (It’s praiseworthy to admit if you don’t know something rather than blag it!)
Utmost Good Faith.
I still recall this from the first time I entered this industry (not willingly I might add!) and the induction began with a slide that said this and I have never forgotten it. (that is 25 years ago, well done the trainer at Endsleigh Insurance Services)
It’s a simple premise but I must say it is the cornerstone to anyone who is in our industry and should be how every single adviser operates.
Sadly though, as a pragmatist I know that some don’t hold this as a core value and to be frank some companies seem to be lacking this one too!
But when you strip away all the dressing on the job of any financial adviser I think you must agree that this should be what it all comes down to, treating your clients in the same basic way, trying to do your best for them always. So this brings me onto the levy (See I did actually come back on topic!)
Why do we have a FSCS levy?
To support customers that through no fault of their own have lost money that they should not have reasonably expected to lose. (that’s how I see it anyway) Typically this is through a closure of a provider of some sort, with failed SIPP companies seeming to be the latest to cost innocent customers money, so it made me think again about “Uberrima Fides” and specifically investments that you, the IFAC community, recommend to your customers.
We know that we are not responsible for falling investments, that’s not our fault as even with cash funds inflation could rise and that can’t be attributed to an adviser!
But we are responsible for everything else, yes if you step back and look at what you do, the only thing that you are not really responsible for is the fund performance of what you recommend, everything else to a greater or lesser degree falls on your regulated shoulders!
So what can you do as an IFA to meet the requirement of Uberrima Fides? Easy peasy lemon squeezy (been dying to use that phrase in a newsletter) just remember this:
“Your job is to do the very best that you can for every client” This is regardless of whether you are restricted, tied or independent, so what can you do?
1. Know Your Client
2. Gather every piece of relevant information you can, never be afraid to ask for something, ever.
3. Know your client’s objectives, don’t just assume the thing they want to talk about is everything that needs looking at.
4. Be logical. If a client wants Life Assurance for example, make sure that the amount you recommend makes sense and can be linked to a real need. (Not everyone needs £500k!)
5. Ask lots and lots of relevant questions and make plenty of them Open Questions (if you don’t know what an open question is shame shame!)
6. Document everything that has anything to do with the client’s situation.
7. Evidence is key, you should be able to evidence everything important.
8. Research, research, research! Did I mention research?
9. Be confident about your fees, never be afraid to charge a client for your services.
10. Check understanding, always make sure that the client really does understand what you are talking about, if they are unsure, explain it differently until they are comfortable.
11. Write a Suitability Report that makes sense, it must tell a logical story and contain every relevant fact.
12. Remember that the client is in some way paying for your services, remember that word, service. They are not paying for you to sell them something but to sort out an issue or fill a need, if you think “product” then you are not thinking as an adviser you are thinking as a salesperson and the industry has no real need for salespeople any longer.
With more than 25 years’ experience in this industry (at a very high level at times) I have seen poor advisers and great advisers and the difference seems to be only in how they approach their job.
You don’t need to be a national IFA to be able to do good work for your clients, you don’t need to be a one person operation either, you just have to approach the job with the right mindset! You come at this job looking to “make a buck” then you are already looking at it wrong.
If you come at this job with the mindset that you believe that you can do good things for your clients and in return you’ll be remunerated well, then you and I are already thinking in a similar way. (If you are a pension and investment nerd like me that will only help further!) Furthermore, if you have, like me, an annoyingly prominent ethical chip on your shoulder, then I think that you are approaching this job in the right way…..
So yes, the FSCS Levy is increasing and it is a direct consequence of historical poor practice in my opinion but as an IFAC member you don’t have to fall into the category of one of the historical culprits for this rise.
Use our Pre-Scrutiny services.
Use our knowledge bank, our document library, our collective experience.
Work with our File Checking team to improve your game.
View the annual audit as a way to show off how well you are doing.
We are here to help you do great business not stop you from doing business. (after all we are not an insurance company compliance officer from the 1990’s!)