How many more fee rises can advisers take?

Donia O’Loughlin

Today’s (28 April) news was a bit of a shock. While I don’t think anyone expected a decrease in the FSCS levy, pension and life intermediaries were badly hit.

This morning, the FSCS revealed that pension and life intermediaries would be stung with a maximum £100m levy, a 75 per cent increase than that which was expected when the FSCS gave its levy indication earlier this year and three times last year’s bill.

The cause? Regulated advisers putting clients into unregulated investments into Sipp wrappers going out of business.

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So how much can advisers expect to pay? According to the FSCS, there are 5,300 intermediary firms in the life and pensions sector, meaning that if the levy was split equally (which it isn’t, of course), each firm would pay nearly £19,000.

Elsewhere, there are around 5,700 intermediary firms in the investments sector, who were hit with a £116m bill. This is £9m less than January’s FSCS estimate, however if each firm paid an equal amount it would be £20,350.

The levy depends on turnover, so some firms would pay more than the amounts quoted above and others would pay less.

But there is no doubt this is a massive hit on firms, especially when you take into account the regulator’s fee hike earlier this year. In March, the regulator said that advisers are to pay an extra £6.9m in FCA fees.

A £74.9m levy has been proposed by the regulator for advisers as part of its consultation paper on funding requirements for 2015/2016, up from £68m last year. This was met with incredulousness across the industry.

The Association of Mortgage Intermediaries stated it was going to take this issue up with the Treasury, while the Association of Professional Financial Advisers wrote an open letter last week to the leaders of the UK’s political parties, stating the FCA’s decision to increase regulatory costs was “disproportionate”.

Today’s fee news was met with equal incredulity, but as Apfa’s Chris Hannant told FTAdviser, the industry needs to tackle the source of the complaints.

He suggested that the regulator should use its product intervention powers, but the FCA told me that it can’t as these are unregulated investments.

FTAdviser readers proposed alternatives, such as that advisers should be adequately insured, that unregulated activity should not fall on the FSCS or that adviser doing unregulated business should be carved out into a spearate sub-class, or oft-cited ‘product levies’.

Neil Liversidge, managing director of West Riding Personal Finance Solutions, saidthere should be a white list of compensatable investments, everything outside of which should not be eligible for a FSCS payout.

With the pension reforms not even a month old, now is the time to address the issue of scams, which in consequence leads to rising adviser fees and fewer mainstream clients who can afford support.