Philippa Gee: FSCS must make high risk products pay more at launch
The validity of FSCS levies has been debated far and wide, so I suppose I shouldn’t drone on about it… but I will.
My issue is that, in general terms, the principle reason that the FSCS has to pay out so much money, which it then has to recoup through massive levies, is that certain products are built on sand. Yes, it also takes a dubious sales process to then convince others that the best thing that they can do is invest into these delightful bundles of joy, but if the products weren’t rubbish to begin with, then would the problem be as bad?
So surely the answer is to try to stop the launch of these products in the first place or at least use them as a way of funding the FSCS in advance, rather than in arrears? So I would suggest a tier of different charges are introduced at the time the product is planned to be launched:
If a standard product is launched, then as part of the application process they pay a standard FSCS levy.
If the product offers an income of more than 6 per cent - they pay double the standard FSCS levy.
If the product will be unregulated - they pay triple the standard FSCS levy.
And so on.
And therefore as the product becomes more complicated, or more layered, then the upfront charge to the product provider becomes higher. I would also like to say if they allowed commissions or adviser charges of more than 5 per cent, then that should also warrant an additional charge, but what would you say about that?
I am not trying to stop new and innovative investments being launched by making the process cost-prohibitive, but if the belief is there that the product will be in such high demand (for the right reasons) then an additional set up cost should not put anyone off.
Philippa Gee is managing director at Philippa Gee Wealth Management.
Have you looked at investment trusts more since RDR?