When The Levy Breaks

I have a serious suggestion to make that, if adopted across the adviser community, could make a real difference to how the public perceive financial planning firms.

As you will undoubtedly have seen, George Osborne’s idea for retirees to have access to “free and impartial guidance” is to be provided by ‘independent organisations‘.

And who is to pay for this? It seems a levy is proposed. A levy on regulated financial services firms.

In a separate and rather interesting development, it would appear that all books are going to be given away free, with printing costs to be funded by authors. And politicians will henceforth be required to work in the charitable sector without pay after they have left public office.

Is there another example of an industry being forced to fund a competitor set up by the State? I can’t think of one.

So why is this being allowed to happen? I’ll leave it to others to discuss the relative merits of adviser representative bodies. I have another theory.

I’m trying to picture George Osborne mulling over how to fund this free guidance he has promised. He can’t fund it through taxes – there’s an election coming up after all – so he has to find another way. Who doesn’t seem willing or able to fight back? Which group is disparate, disorganised and has an easy method of collection already in place.

Most importantly, however, whose clients are high net worth and able to handle a small rise in fees as the advisers pass on their increased costs to their clients? There’s the cruncher right there. Get adviser firms to pay, they will have to increase their fees and clients will moan at them, not the Government.

Which leads me to my suggestion. Why don’t we pass this levy directly on to clients. How about every adviser firm in the land write a letter to their clients advising them that the Government have asked us to collect some money from our customers in order to pay for free guidance to the general public. Include an invoice for the amount (simply divide the levy by the number of clients).

It would need all of us to do it, though. Every firm send the same letter. Get the story in the press. Make sure people understand that this is not a levy on firms, it is a tax. It might even be a pretty good tax, funding a good idea, that’s a matter for opinion. But it’s NOT an increase in fees by adviser firms to their clients, which is what a levy makes it appear.

If the idea works, we could do it again with the FSCS levy. ‘Here is the bill for your contribution the Government have asked us to collect which pays for compensation to clients for those adviser firms that gave bad advice and then were then wound up’. Focus might turn away from adviser firm fees and charges to why those failed adviser firms were allowed to give bad advice in the first place.

So, here’s calling all firms, all representative bodies. Let’s all of us write to our clients when the amount of the new levy is announced and let’s pass it straight on to the customer making it clear where it came from. Don’t let that anger stick on us, but pass  it straight through back to the Government where it belongs.

 

In the sixties, Arlo Guthrie (son of Woody) released a humorous anti-war song called Alice’s Restaurant, about the Draft and who the army would and wouldn’t take.  Its conclusion is that things will only change is enough people want them to. This is the end of the song, suggesting everyone should walk into the army recruitment office and sing the chorus of Alice’s Restaurant:

You know, if one person, just one person, does it, they may think he’s 
really sick and they won’t take him.

And if two people do it – in harmony – they may think they’re both faggots and 
they won’t take either of them.

And if three people do it! Can you imagine three people walkin’ in, singin’ 
a bar of “Alice’s Restaurant” and walkin’ out? They may think it’s an 
organization!

And can you imagine fifty people a day? I said FIFTY people a day . . . 
walkin’ in, singin’ a bar of “Alice’s Restaurant” and walkin’ out? Friends, 
they may think it’s a MOVEMENT, and that’s what it is: THE ALICE’S 
RESTAURANT ANTI-MASSACREE MOVEMENT!

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6 thoughts on “When The Levy Breaks

  • Excellent article. Utterly captures my mood on these matters. Having just had a £50k levy applied to a business that pays £70k PI every year and didn’t partake in any of the recent ‘scandals’ I am exasperated by the approach taken by he regulator/government.
    Having spent the first 20 years of my career in the accountancy profession I am lost for words at the concept of paying for other firms mistakes and now paying for advice to people that we don’t want to service.
    Suffice to say we’ve set up an accountancy firm again…IN Accountancy-just to go back and experience some regulatory sanity.
    Good idea about the movement Chris. Great song & a sentiment that might work
    Andy

    Reply
  • “Grant me the serenity to accept the things I cannot change,
    The courage to change the things I can,
    And wisdom to know the difference.”

    I’m ambivalent about the whole matter.

    As for other industries, and just to use one example, a client of mine has just been fined a five figure sum for not having fire exits clearly labelled on his property development. Only thing was he was only just pouring concrete to lay foundations.

    Reply
    • There’s an alternative quote to the rather fatalistic one you suggest, Alistair:

      “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.”
      Margaret Mead

      Reply
  • Great article and suggested solution.

    I don’t believe our clients would have any objection to paying the cost of regulation in their fees; that’s expected. The cost of FCA fees, PI insurance and indirect regulatory costs? Absolutely fine.

    But when the FSCS levy component is 82% of the annual regulatory invoice (and that’s before the possibility of any interim levy during the year), something has gone badly wrong.

    How can we be paying less than £4k this year to fund the FCA but over £16k to atone for the sins of bad advisers via our FSCS levy? The system is bust.

    To add a Guidance Guarantee Tax to the invoice is madness.

    The clients we choose to work with (as, you know, a commercial business) will receive no benefit from the Guidance Guarantee, as they have specific advice needs. Why should they be forced into paying this tax when they are already paying to receive personalised and tailored advice so they don’t personally require the Guidance Guarantee.

    Reply
  • I think that as a general principle an advisory firm could do worse than itemise those specific costs that it must directly pass on to the client as the result of regulation.

    I don’t think that in this case it would make any difference though. After all, the demographic of people that the regulator seems intent on leaving open the option of financial advice are those who can afford the high cost base of those bringing the service to market.

    Telling them that part of their fees are being redirected into ‘free’ guidance to those less well off may not have any effect. Even if you get traction in the adviser community and everyone did it, the clients might just shrug and take Alistair’s ambivalent approach.

    Reply
  • I cannot understand why discussions on product liability and the levies we pay always involve the regulator.

    Our industry has always operated under the arcane Law of Agency. In simple terms if you are paid for selling a product then you accept liability for that product.

    Nothing whatsoever to do with transient regulation or regulator. If you do not understand this then think how providers retain product liability when using their own employed saleforces.

    If we don’t want levies and PI cover and compliance then we should be lobbying for a change of the Law under which we operate. This is especially relevant for those who no longer receive remuneration from providers for product distribution – whatever that remuneration is called.

    As far as the proposed levy for pensions advice I also do not understand the reluctance to see the huge market which is being opened for us by other people.

    Yes this new market may look different in economic terms but with a little thought there are unimaginable business opportunities which will make it imperative that we are included in it’s development and perhaps keep Amazon and Google at bay.

    Reply

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