16 September 2020
Scams and FSCS issues are symptomatic of supervisory failings says PIMFA at Select Committee inquiry
PIMFA, the trade association for the wealth management and financial advice industry, has today (16 September 2020) given evidence to the House of Commons’ Work and Pension Select Committee inquiry into pension freedoms and scams.
As part of PIMFA’s evidence to the Committee, Tim Fassam, Director of Policy and Government Relations at PIMFA, addressed the twin problems of the failure of the Financial Conduct Authority (FCA) to provide adequate supervision of firms, as outlined in the most recent PIMFA whitepaper, and the ever increasing financial burden place on advisers by the Financial Services Compensation Scheme (FSCS) levy. Both of which result in poor outcomes for consumers.
PIMFA’s Director of Policy and Government Relations, Tim Fassam said: “While the focus of this part of the inquiry looks specifically at the prevalence of pension and investment scams arising as a direct result of pension freedoms, it is also important to bring to the attention of the Committee the propensity for individuals to invest in products which whilst not strictly scams, pose significant potential for consumer detriment.
These are products which fall outside of the regulatory regime, which are largely unsuitable for retail consumers but sold to them regardless, and legally, he added. While, in the event of these products failing, consumers will have the ability to claim compensation through the Financial Services Compensation Scheme (FSCS), PIMFA take the view that it would be a better outcome if these products were not available to individuals in the first place.
Mr Fassam said: “Every customer who finds themselves in need of the FSCS has had a poor outcome and an incredibly stressful experience; it is best for all if this can be avoided”.
He went on to add that any solution to the current situation must also take account of the challenges posed by the FSCS, whilst balancing the obvious and ongoing need for consumer protection, saying: “It has been PIMFA’s view for some considerable time that the standard of supervision carried out in this sector is inadequate and has led to significant market distortion. Unless this is addressed, compensation costs will continue to rise, as will levy payments to the FSCS by our members.
“It is our view that the FCA’s regulatory approach currently incentivises firms to deliberately transfer risk onto the FSCS and continue trading, while the practice of ‘phoenixing’ remains far too prevalent.
“These two issues, combined with the fact that the calculation of the levy is homogenous and takes no account of the risk any given firm poses to the FSCS, has led to an unsustainable situation of increasing unaffordability and decreasing trust across our profession. While it is welcome that the FCA has recently recognised issues with the construction of the levy, questions remain about the reasons it continues to rise.”
“PIMFA is working constructively with the relevant stakeholders to address this. We are pleased to see the FCA recognise only yesterday that ever increasing, and unpredictable FSCS costs are unacceptable. We also welcome the regulator’s commitment to working with all of industry to reduce the ongoing financial and reputational cost over the long term.”
Notes for Editors
About PIMFA – the Personal Investment Management & Financial Advice Association
· PIMFA is the trade association for firms that provide investment management and financial advice to everyone from individuals and families to charities, pension funds, trusts and companies.
· The sector currently looks after £1.5 trillion in private savings and investments and employs over 55,000 people.
· PIMFA represents both full and associate member firms. Full members provide a range of financial solutions including financial advice, portfolio management, as well as investment and execution services. They assist everyone from individuals and families, to charities and pension funds, all the way to trusts and companies. Associate members provide professional services to the PIMFA community.
· PIMFA collaborates with product and service providers to offer member firms a suite of membership enhancements, through its PIMFA Plus partnerships. Find our more here.
· PIMFA leads the debate on policy and regulatory recommendations to ensure that the UK remains a global centre of excellence in the wealth management, investment advice and financial planning arena. Our mission is to create an optimal operating environment so that its member firms can focus on delivering the best service to clients, providing responsible stewardship for their long-term savings and investments.
· PIMFA was created in 2017 as the outcome of a merger between the Association of Professional Financial Advisers (APFA) and the Wealth Management Association (WMA) with a history as a trade association since 1991 – read more.
· Further information can be found at www.pimfa.co.uk
· To become a member of PIMFA for access to training, benefits and discounts, please visit https://www.pimfa.co.uk/become-a-member or contact us directly at email@example.com
For further information on this release or other press matters please contact:
· Matthew West, PIMFA PR Manager – MatthewW@pimfa.co.uk, +44 (0)20 7382 0376 / +44 (0) 7843 903258
· Sheena Gillett, PIMFA Communications & PR Director – firstname.lastname@example.org, +44 (0)20 7011 9869 / +44 (0)7979 493225