The FSA is being urged to consider firms' "willingness and ability" to pay regulatory fees as a fairer way of allocating costs to financial firms.
A team of economists hired by AIFA to scrutinise the FSA's fees process claims the amounts currently paid by IFAs are "disproportionate" to their position in the industry.
In the 20010/11 financial year, IFAs are due to pay about £70m in FSA fees while adviser firms in total will pay almost £130m, second only to banks and building societies. Firms have been receiving their FSA fees bills this week.
In an article in this week's Professional Adviser, Tom Robinson, economist with RGL Forensics which undertook the work for AIFA, says the most "economically efficient" way for the FSA to recover costs may be via a Ramsey Pricing-type approach.
Traditionally applied in regulated utilities, Ramsey Pricing maximises social welfare by recovering more costs from those customers who are least price sensitive.
Robinson says the term when applied to FSA fees could be translated as "those who are willing and able to pay more should do so".
Currently, the FSA allocates its annual costs - £454m for 2010/11 - in two stages: firstly to each of its 19 fee blocks, then to individual firms within those groups.
According to RGL, the FSA applies what it calls "direct" costs during the first stage - those costs for the year which can be easily attributed to certain fee blocks.
However, the second stage concerns "indirect" costs, which cover broader FSA projects such as industry studies and investigations, which can not be easily passed on to specific fee blocks.
As a solution, RGL says the FSA simply applies its indirect costs in a ‘pro rata' fashion to its direct costs. For example, if a particular fee block pays 20% direct costs, it also pays 20% indirect costs.
"This pro rata allocation is an arbitrary methodology and does not consider issues such as affordability, proportionality, the structure of the industry or the importance of IFAs to competition," Robinson says.
The FSA has already changed the way it allocates its annual fees to individual firms.
For the first time, the FSA is charging firms a minimum fee of £1,000 plus what it calls a "periodic" fee, which is dependant on the amount of permitted business a firm undertakes.
While the regulator says 60% of firms will pay less in the 2010/11 financial year, larger and "more complex" businesses have seen "significant" fee rises.
Read Tom Robinson's article in full HERE.
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