The cost of regulation currently borne by our industry is in the region of £1.4 billion per year, a truly staggering number. It now appears that this figure is likely to increase still further, adversely affecting staff retention and recruitment, reinvestment and, ultimately, squeezing already reduced profitability.
As the trade association for the financial advice and wealth management sector, PIMFA has responded to the Financial Ombudsman Service’s (FOS) ‘Our Future Funding’ consultation, in which they propose a change in their funding model from 85% fees and 15% levy to a straight 50/50 split between the two.
This is both unfair and disproportionate and will result in those firms which generate the fewest complaints paying for those which generate the most and removing/reducing the financial incentive for those ‘bad boys’ to modify their behaviour and/or improve their complaint handling.
Surely, there is a disconnect here. On the one hand, the end consumer needs the protection that organisations such as the FOS, Financial Services Compensation Scheme (FSCS) and the FCA provide but, if the advice sector continues to be squeezed until the pips squeak, there will ultimately be fewer sources of advice to complain about.
This is time for joined-up thinking. No financial analysis was provided in the consultation paper explaining how this decision was reached and, rather than increasing the levy element, the FOS should rework its proposal so that the costs recovered by means of a levy are as low as possible. Further work is needed to address this issue.
The deadline for PPI claims, a significant part of the FOS caseload in recent years, is the 31st of August this year, after which their operational output will reduce. The new FOS Chair, Baroness Manzoor, is even now settling in. She brings high-level experience of public service, governance and dispute resolution to the role.
These changes to FOS circumstance can herald in a time of re-examination during which solutions can be found which reduce the cost burden on firms. Greater interaction between FOS, FSCS and FCA could and should produce a more cohesive approach to nipping potential crises in the bud, thus reducing distress to clients and saving significant amounts of money for both them and the industry.