Advisers and trade bodies have spoken out in disappointment after the Financial Conduct Authority pushed ahead with a substantial rise in levies despite strong opposition from the industry.
Late last week the FCA confirmed that advisers will pay 13 per cent more in fees and levies, despite fewer advisers existing in the market and the higher standards set by the Retail Distribution Review.
The policy statement also re-stated that proceeds from fines will largely go to the Treasury, with less being rebated to the industry to counter rising levies.
Chris Hannant, director general of the Association of Professional Financial Advisers, said the FCA seems not to have listened to the industry’s responses to consultation.
He said: “We were quite disappointed that they have gone ahead with the allocation as it is. We don’t think the cost reflects the changed risk that the [advice sector] poses thanks to RDR.
“RDR has raised standards. It’s reduced risk so the advice sector poses a much lower risk to consumers. If you look at their activity this year, supervisory activity... is relatively small.
“Their proposed activities don’t reflect the allocation of cost to the sector.
Last month (12 June), Mr Hannant said he would push to secure a “regulatory dividend” for advisers, an idea that the Financial Services Authority itself promised years ago and which would allow firms to save on regulatory costs if they embraced principles-based regulation.
Mark Bastable, managing director of Hampshire-based Templegate Financial Planning, said: “Considering the so-called cowboys have left the industry, one would assume that the risk level was less so why would they want to increase fees way way above inflation?
“In an industry where we have had to jump through hoops for exams, it seems to me that they are cutting off their nose to spite their face. “
He added that the cost of regulation will ultimately have to be borne by customers, which will continue to widen the advice gap. He said he has already had to turn customers away because they did not have enough money for his post-Retail Distribution Review business model.
Keith Richards, chief executive of the Personal Finance Society, said: “The news is naturally disappointing given that the RDR should have brought with it reduced costs of regulation to the advice sector in particular.
“We have seen compelling evidence that the sector has responded well to the regulatory change and possesses lower risk than many other sectors in the financial services industry.”
Mr Richards gives the example of recent data from the Financial Ombudsman Service which showed that less than 1 per cent of complaints were advice related, and fewer than half of those were upheld.
He added that the increases in regulatory costs coupled with the shrinking adviser pool puts an increasingly unbearable load on the advice sector.
“It feels wholly unreasonable and unsustainable for the future.”
Robert Sinclair, director of the Association of Mortgage Intermediaries, echoed the others’ disappointment but pointed out that the regulator was “stuck between a rock and a hard place”: the rock of offering more services and the hard place of bringing down the cost of regulation.
He said: “One of the challenges here is the number of things impacting on this. The move to two regulators was always going to cost more.
He also argued that having the Treasury scoop up revenue from fines will make it all the more difficult to bring levies down: “The fact that politicians have taken away a large proportion of the fines, that will will have a large effect on firms’ costs.”
