Outraged advisers have claimed spiralling regulatory costs could severely erode their numbers in spite of the government trying to promote financial advice.
A ramped-up regulatory bill comprised of costs for funding the Financial Conduct Authority (FCA) as well as the Financial Services Compensation Scheme (FSCS) landed on advisers’ doormats last week with many shocked at the stark level of the rises.
The largest area of increase affected advisers in the ‘life and pensions intermediation’ category where the levy almost doubled compared to the previous tax year. That portion of the levy has leapt from £57m to £100m, which the FSCS said was primarily due to a rise in claims over Sipp investments.
Several advisers have said the rising costs will create a significant burden for smaller firms and potentially reduce the number of advisers at a time when more will be needed if the government’s aim of promoting engagement with pensions is successful.
Kim Barrett, managing director of Barretts Financial Solutions, said his total regulatory costs levied by the FCA and FSCS had risen from £9,970 last year to £13,384 this year – a 33 per cent hike.
The adviser’s life and pension mediation element of the FSCS levy has risen a remarkable 215 per cent, from £1,943 to £6,126, he added.
“This is the economics of Zimbabwe,” he said. “It will wipe out IFAs as people won’t be able to afford [their advice].”
Martin Bonynge, director of Prosperity Wealth Management, has penned a letter to chancellor George Osborne on the back of receiving his regulatory bill, which he said rose from £7,000 to almost £17,000.
He added £14,000 of this was the FSCS levy. He may have to pay another levy, known as the interim levy, to the organisation in April, as was the case last year, he said.
“This is unsustainable for a small business like mine and is a real barrier to further job creation,” Mr Bonynge wrote, adding he had now had to put the expansion of his business “on hold”.
He added unless there was a change, many small companies were “likely to go out of business, leaving consumers without good advice at a time when the industry is already facing falling adviser numbers”.
Scott Gallacher, financial planner and director of Rowley Turton, said there was a misleading perception that regulatory costs were borne by financial “fat cats” but the actual cost was in fact usually passed on to small-scale clients.
“The FSCS levy on its own should not be enough to put people out of business, but it has an impact on their figures and clients end up paying for it,” he said.
Dominic Thomas, financial adviser and founder of Solomons IFA, said such high fees could “make it very difficult for smaller firms”, particularly those struggling with the transition away from commission towards a fee-based model.
Heavy levy: how to lighten the load
The levy is a controversial topic.
It provides a safety net for consumers that find themselves unfairly out of pocket due to a collapsed investment scheme or improper advice.
But of course it is those businesses that keep running and those that offer sound advice that pick up the tab – like seeing your car insurance premiums rise even though you are accident free.
Both Martin Bonynge and Dominic Thomas suggested a product levy might be a better solution, meaning end-clients would bear some of the brunt.
Other suggestions, made by Mr Bonynge in his letter to the chancellor, were that the companies being fined should pick up the tab or a fines system based on upheld complaints implemented.
Osborne’s ‘radical’ pension reforms need to take advisers along for the ride
Senior asset management figures and The Investment Association were clearly excited about the chancellor’s mooted pension reforms.
George Osborne announced in his Budget last week that he was “open to further radical change” of pensions and launched a green paper seeking a solution to pension tax-relief reform.
Steven Levin, Old Mutual Wealth’s managing director of distribution, said the amount being spent on pension tax relief was “probably not working hard enough to get people to save because they don’t understand how it works”.
He added the chancellor could significantly change the way people engage with pensions”.
Tony Stenning, BlackRock’s head of UK retail, was equally excited, stating “we have a real opportunity to change people’s actions”.
“In 2035, we will hit a tipping point where the generation retiring will be worse off than the one before,” he said. “Now we have a chance to change that.”
As the head of The Savings and Investments Policy project launched by the Tax Incentivised Savings Association (Tisa), Mr Stenning has been lobbying for radical change in the long-term savings industry.
Indeed, one of its recommendations sought to assist any government initiative “to reform pension tax relief” or “nudge” people into saving more into pensions.
But the investment management industry must, amid its excitement about sorting out retirement provision, make sure there is an adviser industry of a viable size to help dispense pensions advice.
