With falling adviser numbers affecting firms' regulatory costs, can the Financial Conduct Authority (FCA) find a better way to raise fees?
Regulatory fees for financial adviser firms are rising. Last week, the FCA confirmed advisory groups would contribute more than £39m toward the £432m it expects it will need for 2013/2014.
That’s 9.1% of the total – marginally more than fund managers will pay – and prompted the Association of Professional Financial Advisers (APFA) to call the figure “disproportionally large”.
Additionally, the amount will be shouldered by fewer firms (there are now less than 7,000 groups identified by the FCA) as changes introduced following the Retail Distribution Review (RDR) take effect. So, should the regulator change the way it allocates fees to make it fairer for advisers?
Fees: Is there a fairer way?
Under the current system, the FCA splits the industry into fee ‘blocks’ and divides its fees and levies based on the collective income of firms in each block.
But advisers, most of whom are in block A.13, argue the system is unfair because, when the number of firms within each block decreases, fees rise for the remaining companies.
“I am not a fan of the current system,” said Wessex Investment Management managing director Kevin Bailey. “It is seriously flawed, being dependent as it is on last man standing principle.”
But the FCA is considering changing its model (see chart). Under one option, it will continue to segment financial services firms, but based on their risk to the industry rather than their line of business. Under another, it will abandon the segmentation system entirely and introduce a single, common measure – perhaps income – to determine firms’ contribution to its funding requirements.
APFA is clear on what it believes would be best for financial advisers: the eradication of fee blocks and a simple measure to determine how the FCA raises its fees.
A system without segmentation and based on a percentage of the turnover of individual firms would save a lot of effort and money, according to APFA director-general Chris Hannant (pictured). “The current system is causing a lot of effort and is expensive, while the outcome is not perfect,” he said. “Any system will be flawed so we might as well have a cheap one.”
The FCA has already changed the way it calculates fees within blocks – from a headcount measure to one based on income – so, according to Hannant, the regulator already has all the data it needs and the switch would “require a spreadsheet and nothing more “.
However, there is a caveat: though a change in system would likely be welcomed by firms, any changes would not be implemented until at least 2016/2017, according to the FCA’s timescale.
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