Many financial advisory firms across the UK have been hit by several recent increases in the fees and levies they need to pay.
Firstly, the regulator, the Financial Conduct Authority (FCA), has seen its costs increase by 8% in a year due to an increase in staff numbers and additional investment in technology. The FCA has also decided that the largest increase in annual authorisation fee will be paid by firms in the A13 fee block – financial advisers that do not hold client money. Advisory firms will therefore see their FCA fee rise by 10.2% in 2015/16, with the regulator justifying these firms bearing the brunt of the increased costs on the basis they received a rebate in 2014/15 after Retail Distribution Review costs were over-estimated.
Although the Money Advice Service’s overall budget for 2015/16 remains unchanged, financial advisers will need to pay 16% more towards the costs of funding this service than in 2014/15.
At the end of March 2015, life and pensions advisers started receiving invoices for their share of a £20 million interim levy imposed by the Financial Services Compensation Scheme (FSCS), the body which protects customers from loss when financial firms cease trading. Many firms reported receiving an interim levy bill of £1,000 or more. The FSCS said it needed to impose the interim levy for 2014/15 as its costs of meeting self invested personal pension mis-selling claims had been larger than expected.
The FSCS had already hit advisory firms with the news that the share of the organisation’s regular levy they will pay in 2015/16 will be much higher. Collectively, life and pensions intermediaries will pay a levy of £57 million, up from £34 million in 2014/15; while investment intermediaries will pay £125 million, up from £112 million.
Furthermore, this financial year will see advisory firms pay a new levy to fund Pension Wise, the guidance service on the new pension freedoms. Advisory firms with annual turnover of £100,000 or more will collectively fund 12% of the cost of providing this service.
One small consolation might be that advisory firms are not expected to see an increase in the levy they pay to fund the Financial Ombudsman Service, the independent complaints adjudicator.
None of these organisations receive any funding from direct taxation, so are dependent on payments from regulated firms to cover their costs. Nevertheless, the head of one of the main trade associations expressed his dismay.
Chris Hannant, director general of the Association of Professional Financial Advisers (APFA), said:
“It is imperative that the FCA gets a grip on regulatory fees. It cannot just present the industry with an ever-rising inflation-busting bill.
“APFA’s 2014 report on regulatory costs shows they represent around 15 per cent of the cost of advice. This is a significant cost to the consumer and reduces access to advice at a time that pension reforms make affordable financial advice ever more important.”
After conducting a survey of member firms in spring 2014, APFA suggested that financial advisory firms are being forced to pass on soaring regulatory costs to the tune of a £170 fee increase for each client.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.