For the past few weeks’ advisers have experienced a sharp increase in their annual regulatory bills – some have reported increases of 85% or higher.
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, according to Professional Adviser.
Not surprisingly the FSCS levy fee has met with controversy amongst the adviser community.
Philip Hanley, director and independent financial adviser (IFA) at Philip James Financial Services says: “Talking to other advisers, a number are starting to say that being directly authorised is ‘becoming ridiculous with ever increasing costs’, and feel that the FCA would prefer to regulate a few big firms rather than thousands of small practices.
“The FCA’s Retail Mediation Activities Return (RMAR) figures , however, show that the large firm model doesn’t work, with those with over 50 advisers loss-making. The manufacturer/tied distribution model (SJP) does work, so the likes of True Potential and Quilter have a fighting chance but will need to increase their charges to ‘SJP levels’ to survive.”
Scott Gallacher, director and chartered financial planner at Rowley Turton says: “The increased regulatory costs (FCA, FSCS) are arguably seen as a free lunch for regulators and the government as there is seemingly no public resistance as the costs are paid by the adviser firms, not the general public.
“Unfortunately, this overlooks the fact that those charges must, in due course, be passed on to consumers in one way or another. Perhaps as importantly, those rising costs will have an impact on adviser firms current and future investment.
“This impact will be in two ways, the initial impact of having less money available to invest – I have read of at least one adviser cancelling a planned new recruit due to the additional costs they have incurred, and the longer-term reduced profitability (due to the higher costs) making investment in adviser firms less attractive. These factors could have a devasting impact on the advice market and further worsen the already problematic ‘advice gap’.”
Keith Richards, chief executive of the Personal Finance Society (PFS), said “As we stated in our FAMR response, we understand regulation has a cost, particularly in the case of the Financial Services Compensation Scheme (FSCS), and ensuring good practice is maintained for consumers.
“However, there is also a great amount of volatility built into these areas as well as unwelcome and unplanned additional levies. Coupled with the hardened PII market which has seen most advice firms annual bill increases significantly over the past couple of years, the recent surprise increase in FSCS over forecast is having a material impact on the sustainability of the sector.
“The PFS has outlined ways which could resolve the issues around the PII market by reforming the levy system to make it work better for the market and for consumers and ensure greater sustainability for all.
“The PFS continues to make the case to government and the regulator to formally review the market and has called on government to establish a Financial Advice Market Review II to pick up on unfinished work to address the growing advice gap, of which PII and FSCS were key considerations before Brexit distracted attention”