TMA Mortgage Club is calling on brokers to respond to a consultation paper from the Financial Conduct Authority (FCA) on the way the current Financial Services Compensation Scheme (FSCS) is funded.
Brokers have until the end of March to respond to the paper, which outlines three future alternatives to the way financial advisers, including mortgage brokers, pay into the levy.
As it stands, the FSCS levy puts life and pensions in the same class, meaning that brokers who solely advise on mortgage protection are paying to insure pensions products, including self-invested personal pensions (SIPPs). The FCA’s proposed changes to the levy still do not separate life and pension pots.
David Copland, director of TMA mortgage club, said: “Asking mortgage and protection brokers to pay for poor guidance on pensions is wrong. Most of our advisers are not licenced to sell pensions, but are currently paying for bad advice on pension products. Simply put, protection advisers should not be paying into a dual life and pensions pot.
“Whilst the FCA has recognised there is a problem, they have not recognised that these pots must be separated. This has to change, and brokers must take action. That’s why we are campaigning for brokers across the country to encourage the regulator to think again.”
TMA believes the FCA should replace compensation fees with a product levy, weighted against the riskiness of the product being sold. This money should then be paid into a new pot so that when a claim is made, and if the advising firm no longer exists, compensation can be taken from this new fund.
TMA is calling for the FCA to separate the life and pensions pot as a minimum change. The vast majority of mortgage brokers who are paying into the life and pensions pot don’t advise on pensions, yet the number of claims from the life and pensions pot continues to rise.
Last year, the life and pensions pot exceeded its budget by £10m because of claims made following bad advice about SIPPs. The FSCS also plans to levy a further £171m for the life and pension intermediation sector in 2017/18 due to yet more compensation claims for SIPPS and will likely call on all firms once more to contribute, TMA said.