In the last week advisers have seen their annual regulatory bills shoot up to new heights. The Financial Services Compensation Scheme (FSCS) levy appears to be to blame, but adviser increases do not seem to match up with levy projections published earlier this year.
Advisers have reported increases of upwards of 50% on their annual regulatory bill, which many received this week.
The regulatory bill is the total invoice that comes from the Financial Conduct Authority (FCA), and takes into account the FCA periodic fee, the FSCS levy fee, the Financial Ombudsman Service levy fee, Financial Guidance levy fee, and illegal money lending levy fee.
For Penney Ruddy & Winter Chartered financial planner and director David Penney, the year-on-year increase comes largely from extra FSCS-related costs.
This year the firm faced FCA fees that were 54% greater than last year. In 2019 Penney Ruddy & Winter paid £23,354 in fees, £18,768 of which was as a result of the FSCS levy. This year, the firm has been billed £35,935 – nearly £31,000 of which comes from the FSCS levy, representing a 65% increase on the levy fee.
The 65% increase sits in stark contrast to the FSCS’s own projections, which this year saw advisers as a collective billed an extra £16m, which is just a 7.5% increase year-on-year. Fees to fund the Financial Ombudsman Service have also risen by a significant percentage this year but advisers contribute a very small proportion – almost negligible compared to those due to the FSCS – of the levy placed on the financial services industry.
Penney pointed out the total monthly regulatory costs paid by his firm are enough to pay the salary of an additional member of staff.
“[The increase] is an extra £1,000 per month, and the bill will cost us a total of £3,000 each month,” he said. “It’s a ridiculous amount of money – that’s a member of staff. And when you combine professional indemnity insurance as well, it’s dysfunctional. And you can almost guarantee there will be an interim levy in six months’ time.”
Penney said it was not viable to expect small firms to pay such levies, and it will probably lead to fewer smaller firms operating in the market.
“This definitely could cause a massive problem as a small business – there’s no other cost that would hit you in such an unpredictable and quick way,” he said, adding: “You’d have thought there would be some allowance for Covid-19.”
Elsewhere Engage Financial Services managing director and Chartered financial planner Sam Sloma saw his firm’s regulatory fees increase by more than 115% in 12 months.
In 2019 Engage FS was billed £5,200 in regulatory fees, but this year those shot up to £11,200. Back in 2018 the firm was billed a comparatively small £2,270, meaning in just two years the regulatory fees at the firm have increased five fold. Sloma acknowledged turnover at the firm, a metric used to help calculate regulatory fees, has increased during those years, but he said the increase in turnover did not match the increase in fees.
This year Sloma’s fees also came earlier than expected. In previous years he received the bill in September, but in 2020 it was brought forward to July.
For the Chartered financial planner, the issue at hand was the lack of explanation and communication from the regulator as to why fees continue to rise so rapidly.
He said: “How do they get to that decision? To up us by 115% over last year or five times over a two-year period. Like with anything, it’s about fairness and them giving us clarity on what they’re doing and why. If they want to put us up in line with turnover that’s understandable, if they want to give us a theory around what they’re doing and why, then fair enough, but to do it like this, a couple of months early, with 115% increase is the wrong way to go about it
“They talk about treating customers fairly and the impact of clients, and they don’t show any regard for people who paid their fees and levies. I think it’s poor etiquette, to be honest.”
Professional Adviser has contacted The FCA for comment.
This article was previously published on Professionaladviser.com