Pressure to meet the cost of FSA, FOS and FSCS levies has in recent months caused serious friction as some adviser operations feel they are being asked to pay costs which do not relate to their business.
Seeking a solution to the rising cost of regulatory fees, David McMeekin of Foundation Financial Consultancy in Banbridge suggests the charges should be based on turnover or new methods found for highlighting the impact of such costs to clients.
”As a small rurally-based practice in Northern Ireland, we do very little investment business. We maintain full FSA licences, PI cover, etc, in order to provide our clients with a full service. After leaving a network and double charging by the FSA, the regulator will extract around £9000 (including £2000 application fee) from our two-man practice in a period of six months.
“Regardless of the commission on an investment bond being say 7% and looking like it is above the market average, how many of our customers would believe that for some considerable time to come 100% of what we receive by way of investment commission will go direct to pay FSA salaries and other associated overheads. We find ourselves having to subsidise costs out of earnings from mortgage related business due to the horrendous cost of remaining compliant to conduct investment business.
”If we lived in the dream world of the FSA, where on any given day our waiting room (if we had one) was full of footballers looking to save £20,000 per week or overpaid directors looking to invest their £500,000 bonuses, the cost of keeping the FSA and all associated overheads would be insignificant.
”However, back in the real world where we operate, the vast majority of enquiries are more like ‘where could I save £40 per month?’ We refer the vast majority of these enquiries to a building society to do a cash Isa for which we receive precisely nothing.
”In the interests of fairness it is high time that FSA fees were based on turnover. Better still, the costs of the FSA and FSCS levies, financial ombudsman costs and PI cover should all be factored into the product, then the distributor/adviser would only have to justify his own wages and overheads to an already price sensitive public.
”The FSA appears to be forcing the issue because they want all business to be conducted on a fee-paying basis which is fine for those with the waiting rooms full of footballers and directors. If all RIs could achieve a 35-hour week at £100 per hour the FSA would be very sure of their source of revenue and 99% of RI's would feel like lottery winners.
“But let’s get real, this business is bogged down by prescriptive box-ticking, costly regulation and a plethora of non-productive activity. The vast majority cannot afford to and will not pay such fees. Do we accept that this section of our population will be abandoned to the Avon lady or the Tesco's checkout?
”Thanks to our wonderful press, decent financial advisers are a step below vermin in the public perception and just someone you should be chancing your arm with in an effort to pursue some spurious compensation claim.
”It strikes me that we will soon be left with only the large wealthy national IFA practices with the financial clout to conduct broadsheet off page or television inspired sales. Correct me if I am wrong, but is this not the source of most of the problems resulting in the dumping of liabilities on the FSCS levy, getting cash out of your pension early, the collapse of Eurolife etc?
”The best policed IFAs are the small local practices who work with the people they meet in church, at the golf club or in the shops. If you do any local a disservice you can kiss your business goodbye. The police service, who have a much more localised presence than the FSA, readily admit they could not function without the help of the public. Yet, it is the small local IFA practice that is most at risk of being driven out of business, and turnover-based FSA levies would be a good start if this is to be avoided.”
Jim Barr of Anderson Barr Consultants in Houston, Renfrewshire agrees with McKeekin and suggests FSA fees are making life difficult for intermediaries.
"I have just read the letter by David McMeekin and I could not agree more with him. It is high time the FSA got the paper bag off their head and took a glimpse of the real world in which we live.
"what encouragement do they give the low risk sector of the business? There should be a threshold laid down on turnover of regulated investment business where advisers who keep their 'licence' to advise open are only charged a base fee as long as their CPD is kept up to date. They - the government - have already shot themselves in the foot over pensions as nobody sells them anymore. What a surprise!
"Of course, the knock-on effect is that it makes the government's task of ecouraging Joe Public to look out for their retirement all the more difficult, so this empathy has now moved over on to savings."
Joined as head of strategy, multi asset, in June
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