IFA: Regulatory cost hikes prevent ‘low-value’ offering

Increasing regulatory costs are the main precluding factor in enabling firms to service low-value client, and it is highly unlikely that these will abate, a chartered financial planner told FTAdviser.

Kevin Edwards, a chartered financial adviser at Midland Financial Solution, said that in the last four years the firm has aborbed the regulatory costs but cannot afford to continue doing so.

Consequently, the firm has had to increase its minimum fee from £500-£750 for full advice including a meeting, evaluation report and ongoing administration and queries for the year.

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Mr Edwards said: “We have to be more commercially aware. In the past, we have made allowances but we can’t keep subsidising.”

Mr Edwards blamed this on increasing regulatory costs including PII and the Financial Services Compensation Scheme levy “which is more of a problem” as it has seen this increase “five-fold”.

He said: “Whilst we know we will get an invoice in August and probably one in March for the top-up, we never know what it will be until it lands so it is impossible to budget for it. You get 30 days to pay it or they will offer you terms where you can pay in installments but you will have to pay interest on it. We don’t believe in that so we pay within 30 days.”

Mr Edwards also highlighted that more claims are falling on the FSCS as IFAs go out of business either due to the recession or because of mis-selling claims, but there are less advisers in the market to pick up the levy and this is not going to change positively in the near future as the intermediary levy is increasing from £100m to £150m “which will have to be funded by the remaining adviser sector”.

PII costs are also a concern, as the cheapest renewal terms the company has been offered are about 50 per cent higher than it paid last year, despite not having had a single complaint to date and having no legacy issues with endowments or previous mis-selling scandals.

Mr Edwards blamed the company’s independent proposition for this.

He said: “We’ve got some offshore investments for certain clients that we and I think insurer’s alarm bells start going off when you say you might consider investments including structures, investment trusts, ETFs and Ucis.

“Furthermore, there was a court ruling recently which said that clients can pursue advisers over and above the Financial Ombudsman Service limit which I don’t disagree with necessarily if the advice was wrong in the first place but, again, for the PI insurer that just sets their alarm bells going so you have that back drop as well.”