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Advice firm sees 140% increase in regulatory fees

Industry needs to brace itself because ‘the prospect of any change soon is extremely unlikely’


The hits keep coming for the advice sector, which has started to receive 2020 regulatory fee invoices.

Nick Bamford, executive director at financial planning firm Informed Choice, wrote on social media that his company was asked to pay 61.3% more than in 2019. 

He told International Adviser: “The polluter in financial services does not pay. The cost of clearing up is levied against those who don’t pollute but remain in business.  

“Increased Financial Services Compensation Scheme (FSCS) levies and increased PI premiums are a sign of regulatory failure. However, senior regulators don’t have the integrity to admit this. 

“The regulator, in its different forms, has spent 32 years building an empire that is costly and ineffective. It won’t change, because it is easier to levy its ‘failed regulator tax’ than it is to do its job properly,” Bamford added. 

But there are firms that saw even higher increases. 

‘Depressing state of affairs 

Tim Sargisson, chief executive at Sandringham Financial Partners, revealed to IA that fees at his firm are 137% higher than last year. 

“Of real significance for advisers is the question about how much longer this state of affairs can continue over the method of calculation,” he said. “Where the polluter seldom pays, and the burden is lumped upon well-run, low risk firms like Sandringham and its partners.   

“It’s a depressing state of affairs. However, advisers need to brace themselves because the prospect of any change soon is extremely unlikely. Four examples illustrate what I mean: 

First, six years ago, in 2014, the prospect of a ‘regulatory dividend’ for advisory firms was proposed by the Association of Professional Financial Advisers (APFA) but was ruled out by the Financial Conduct Authority (FCA) 

FCA chief executive Martin Wheatley said, at the time, that such a move would be seen as giving some firms an easier ride. He went on to say that the idea advisory firms should pay less in regulatory fees, and be subject to softer supervision because they have improved their professionalism, and therefore pose less risk of a risk to the wider industry, is not something the FCA can consider.  

“[Wheatly said:] ‘Our view is that all firms have to live up to the standards and they are all contributing to the cost of providing a regulated market […]. The regulatory dividend concept was something that fell out of favour because it was seen as usthe FCA, somehow giving firms an easier ride to the system, whereas our view is that all firms have to live up to the standards and they are all contributing to the cost of providing a regulated market. 

Our costs are not recovered from the [bad firms], as the chancellor has decided our fines are quite an attractive source of income for the Exchequer, so that’s no longer a means that can offset our total cost. 

Passing the ‘hot potato’ 

Efforts to lobby parliament to crate change for regulated firms was then passed on to the regulators and lifeboat scheme. 

Sargisson continued: “Second, fast forward to this year. Several advisers wrote to MPs, with the Personal Finance Society (PFS) producing a template letter with which advisers were encouraged to us to lobby their local MPs.  

But the industry’s ‘hot potato’ was passed back to the FCA when [economic secretary to the Treasury] John Glen maintained the lifeboat scheme, and hence its levy, was independent from the government 

Glen said: The FSCS is an independent non-governmental body. The FSCS carries out its compensation function within rules set by the FCA and the Prudential Regulation Authority (PRA), who are also independent from government. 

The FSCS levy is set annually by the FSCS within the limits set by the FCA and PRA. It is for the FCA and PRA to consider the impact of the levies on the firms they regulate, acting in line with their statutory duties. The government has no role in setting the levy. 

No review in sight 

Sargisson argues that even the regulator’s own chairman defined fees as “unacceptable”. 

“Third, last month Charles Randell, the FCA’s chairman, stated that the already unacceptable levy was likely to increase as a result of the coronavirus crisis,” he addedAt the same time, recognising that the system needs to be redesigned so polluting firms’ in the financial sector paid the bill for highrisk and unsuitable investments, not well-run firms via the compensation scheme. 

Fourth, earlier this month, following their chairman’s speech, the FCA revealed it has no plans to revisit the funding structure of the FSCS 

While admitting it was aware of industry concerns surrounding the rising compensation levy; it said, currently, there are no plans to revisit a review of the lifeboat body’s funding structure.

“[The regulator said:] ‘The allocation of the compensation bill and how it is distributed amongst levy payers was subject to an extensive funding review during 2016 – 2018 which went through our usual consultation process. We do not currently have plans to revisit this’.

The FCA went on to say that it is working with the FSCS to prevent future failure and ultimately reduce compensation costs in the long term. 

Businesspeople or financial advisers? 

Sargisson added that the only positive change in the past six years was that, from April 2019, providers need to contribute 25% of the levy for the intermediary funding class. 

However, other than that, no real cause for optimism, with little prospect of further change in the short, medium-, and possibly the longterm.  

Along with the rest of the profession, we will continue to lobby for a change; however, advisers need to be realistic that currently there is little, indeed zero, appetite at the FCA to review matters. 

Against this backdrop advisers must recognise that costs like this are beyond our control. It affects every regulated firm and every regulated individual. There is every likelihood that the costs of protecting consumers, which includes professional indemnity insurance (PII), will continue to rise; possibly for some time. 

Advisers must give equal weighting to thinking like businesspeople and financial planners. Businesspeople will concentrate on their costs, margins, profits and will construct a business plan around a business model that focuses on these key components and the need to cater for the unexpected.  

From these foundations, a pricing model evolves which is then explained to, and agreed by, the client. Financial planners who think less like businesspeople, can find themselves saddled with a pricing model which is both behind the times and provides little ‘wriggle room’ to deal with these events as they become increasingly prevalent,” Sargisson added. 

Keep up with the times 

The PFS has been supportive of advisers’ efforts in lobbying parliament and has deemed the current system “unsuitable and detrimental” for advisory companies in the UK. 

Keith Richards, chief executive of the Personal Finance Society, told IA: “Amid the current covid-19 health and economic crisis, financial advice is more important than ever before.  

Society cannot risk losing access to such valuable services. 

The Personal Finance Society continues to call for an overhaul of the current system of funding of consumer compensation and professional indemnity insurance, as well as regulatory and consumer guidance fees, which collectively, are unsustainable and detrimentally impacting consumers and the profession alike. 

“We all recognise the need for change. The removal of a long-stop is understandable, but as times have continued to move on significantly, it is about time the various levies and compensation funding structures moved with the times also. 

“The Personal Finance Society is urging both the FCA and HM Treasury to recognise the ultimate impact on consumers, and has offered a longer-term solution to funding regulation, consumer education and protection, Richards added. 

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