FeesApr 21 2021

FCA's new flat fee a 'shock' to networks

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FCA's new flat fee a 'shock' to networks

Advice networks have claimed the Financial Conduct Authority's new £250 flat fee, to be paid by each of their appointed representatives, has come as a "shock" to the sector. 

While the regulator's latest fees and levies consultation paper, published yesterday (April 20), detailed only a small rise in advisers' annual fees, it also proposed a periodic flat fee of £250 for each AR, which will see it raise an additional £10m of funding.

It has created a new fee block – A22 – for principal firms and their appointed representatives.

The FCA said principal firms will pay the periodic fee based on the number of ARs they have on the Financial Services Register on the first day of a fee-year, which begins April 1.

The move comes after it found “significant shortcomings in principal firms’ understanding of their regulatory responsibilities for their ARs”, and will help fund additional work in this sector.

The regulator said this included insufficient oversight of their ARs and inadequate controls over the regulated activities which they had responsibility over.

It stated: “We are increasingly seeing more examples of failings through our supervisory and enforcement work. The range of harms varies considerably - from mis-selling to fraud – but they often stem from principals’ failure to oversee their ARs appropriately. 

“The new fee will help fund further work to address these harms in whichever sector they occur.”

The FCA also said yesterday that the amount advisers are expected to contribute towards the City watchdog is to rise by 1.5 per cent to £82.3m next year, while overall, the FCA’s budget is going up by 4.5 per cent to £616.5m.

Most advisers responded well, welcoming the fact it represented only a marginal increase, and one broadly in line with inflation.

But networks have been more critical, despite the relatively low level at which the new fee is set. Gemma Harle, managing director of Quilter Financial Planning, said: "The news of a brand new charge to be stomached by networks and their appointed representatives comes as a shock to the sector."

She said while it was important to ensure principals are held accountable for their ARs, these fees could have “significant ramifications” on good advice businesses who are already struggling under a steep regulatory bill.

Harle said: “At the moment it is hard to understand the justification for such a charge which will have a substantial impact on networks who support smaller AR practices.

"Adding a cost of £250 to each AR indiscriminately means that a large business, which may be undertaking riskier business will have the same additional cost as a small mortgage firm. 

“We have yet to understand what the additional cost will deliver for good firms that cause little challenge for the regulator.”

Harle also said five weeks was not enough time to consult properly.

She added: “At a time when financial advice is more crucial than ever, this proposal and its ramifications needs to be carefully examined and supported by a full business case before implementation.”

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said it was disappointing that the FCA was increasing the cost burden on mortgage firms at a time of falling revenues. 

Sinclair said: “I am particularly concerned that having found issues in controls over appointed representatives in the investments and general insurance space, a broad brush approach has been applied without consultation.

“To add a cost of £250 for each AR to a mortgage network without evidence of harm seems unfair. 

“AMI will be challenging this rushed change to the rules and the cost to firms robustly. For what is another significant addition of new fee classes and costs, a five week response time leaves us very limited time to consult with our membership.”

Rob Clifford, chief executive of Stonebridge, said the system again resembled one in which good firms foot the bill for wrongdoers in the profession.

“A system in which the good pay the costs of the bad is deeply unsatisfactory as is one where firms not even involved in the sectors where poor practice takes place, end up having to ‘bail out’ those where it does,” Clifford said.

“In this regard, the FCA talk about networks not controlling their ARs, but our understanding is this relates to investment and GI firms, not mortgage and protection. 

“We fully support AMI’s position in pushing back against these increases and we firmly believe this to be an unfair approach, increasing charges to mortgage advisers at a time when revenue is falling.”

amy.austin@ft.com, additional reporting by chloe.cheung@ft.com

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