Be grateful, dear reader, for the Financial Services Compensation Scheme is now giving you greater certainty over the likely levies coming down the line. The only fly in the ointment is that this appears to be a guarantee of an increased cost burden.
Once again, advisers are bearing the brunt of increasing regulatory costs, with the FSCS announcing today that investment intermediaries will see a 38 per cent increase in their predicted levy for 2014/2015 compared to the proposed level this time last year. The life and pension intermediation sub-sector is seeing a 32 per cent rise.
Why the increase? Well compensating Catalyst investors that bought into Arm life settlements bonds on the investment side and a likely surge in claims in relation to self-invested pensions are behind the hikes, according to the scheme.
The 2014/15 levy is the first to be calculated under the new 36-month funding approach. The aim of this new approach is to reduce the volatility of annual levies and the likelihood of interim levies.
This is positive, but the stark reality for advisers is that in general their turnover has not increased by 30 per cent. More certainty is to be welcomed, but when it is certainty of a more severe hit it represents a very real threat.
In December 2013, the Financial Conduct Authority said that average advice income has gone up by just 5 per cent in 2013. This is positive news in terms of countering RDR doomsayers, but seems inconsequential when staked against fee hikes elsewhere.
In July 2012, research commissioned by the Financial Services Authority ahead of changes to the FSCS model - which saw investment intermediaries’ potential levy rise to £150m - revealed that more than 250 adviser firms face an implied compensation levy that will be higher than their entire annual profit post-RDR.
The research showed that 171 firms in the life and pensions intermediation sub-class and 80 in the investment sub-class could not meet the implied levy out of their profits under the current regime.
A year and a half later, it is likely that if Deloitte carried out its research again, this figure would be far higher.
And it’s not only FSCS levies is it? The FCA previously announced adviser firms will be charged fees that are 13 per cent higher than in 2012/13, compared to the previous year, under the proposed guidelines.
Overall adviser numbers have hovered at the 31,000 figure over the last 12 months. Although the numbers have remained static, advisers are still seeing rapidly rising regulatory costs, which seem to be way out of kilter.
Ian Broadbent, director of Lincolnshire-based Blue Sky Mortgages, previously said he has seen regulatory fees rise from a nominal fee to 6 per cent of his total turnover in the space of nine years.
Carl Lamb, managing director of IFA firm Almary Green, also previously told FTAdviser sister publication Financial Adviser, that its 2012 FSA invoice increased by 63 per cent to £41,000 and that due to this, he could now longer afford to expand the firm.
Mr Lamb said that the rise was driven by the soaring FSCS charge, which represented more than 80 per cent of the increase. Almary Green, a firm with 16 advisers, 34 employees and a turnover of £2.5m, shelled out more than £80,000 in regulatory levies and PI cover in 2012, more than 3 per cent of its turnover.
There is no doubt that regulatory fee hikes are killing innovation and expansion plans. The extra 30 per cent needs to come from somewhere.
While the adviser market is trying to address the so-called ‘advice gap’ by offering online services and giving clients a ‘free’ one-off introductory session, is now the time to be increasing their fixed costs?
The FCA, who itself said it cannot quantify the advice gap, seems to think so.
