The financial advice industry has strongly complained about the rise of regulatory fees and levies over the last few years.
Some firms have been forced out the market and sold up to consolidators.
But others have decided to take a stand.
International Adviser recently reported about the launch of an action group called ‘Financial Planners United – Striving for Improvement’ on LinkedIn, in a bid to tackle the sector’s biggest issues.
The group was set up by Victoria Hicks, a former adviser and now M&A consultant; Phil McGovern, director of MPA Wealth Management; and Phil Dibb, founder of compliance firm DW Regulatory Consultants.
IA spoke to McGovern about what is next for the group and the “unsustainable” rise in regulatory fees.
Scandalous
“I think that during the current economic climate, when the Financial Conduct Authority (FCA) is saying to IFAs that you need to ensure that you have adequate capital, and you should ensure you can service your expenditure, they slap everyone with a 60% hike in regulatory fees,” McGovern said. “They then give you one month to pay if the bill is over £10,000 ($13,052, €11,018).
“We budgeted for £72,000, which was an increase on last year of 10%, and we were shy by over £30,000. It’s now nearly 3% of turnover which most advisers feel is scandalous.
“Add that to the professional indemnity insurance and we are paying just under 7% of turnover in regulatory fees. Three years ago, our combined FCA fees and PI was under £40,000 and this year its £275,000.
“It’s unsustainable. Firms are struggling to keep their heads above water and many are just being bought out by the consolidators as they don’t see a future for themselves in the industry.
“Clients will be the losers at the end of the day as they will be priced out of the advice market unless you have deep pockets. Economic uncertainty will just exacerbate the problem.”
What’s next?
The group has been encouraging more advisers to join on Linkedin, which now stands at 482 members.
It has been joined by industry heavyweights Gary Heath, Robin Ellison and David Bashforth in their fight to change the sector.
McGovern added: “I think the latest fee rises have angered IFAs and we are maybe a touchstone for that.
“We have been getting IFAs to write to the Treasury Select Committee and Mel Stride, in particular, to point out the long-term outcome of the huge fees hike having on the industry and more importantly client’s access to advice.
“We are drawing up a strategy of action we can all take to make the FCA sit up and see what they are doing to the advice market.
“But, we need to present them with a solution to the problem which is the Financial Services Compensation Scheme (FSCS), as that accounts for most of the fees, and why clients will be adversely affected if there are hardly any advisers willing to service them.”
MP pressure
The group’s strategy to put pressure on MPs is a smart move, but will it work?
“Writing to your own MP doesn’t work,” said McGovern. “You get a bland response saying that they have spoken to the FCA but as they are not accountable to parliament, they can’t do anything.
“The Treasury Select Committee has more teeth and bite and that is where we are focused on at the moment and coordinating our responses to them.
“The sad thing is that we don’t have any real lobbying group for IFAs like we once did.
“The PFS make a few noises, but they are not really a lobbying group and Pimfa have been making a few noises too.
“But what other option do we have? Pressure from the committee for British Steel pensioners forced the FCA to ban contingent charging on defined benefit pension transfers so this seems the best way to go.”
Leaving the sector
Firms do not just have fees, regulation and levies to deal with, the pandemic is also causing some problems for them.
So, how many advisers will leave the space in the next two years?
“At least a third will either pack up or sell up,” McGovern added. “There is a huge amount of consolidation in the industry at the moment and we will see where that takes the industry in the future.
“Sadly, we know of two IFAs who have committed suicide in the recent past and we don’t want to see any more of our professionals lose heart and more.”
