Advisers have said their reduction in Financial Conduct Authority fees will do little to offset the increased professional indemnity insurance costs they are set to face this year.
Yesterday (April 17) the FCA announced a drop in adviser fees of 1.1 per cent, reducing the collective cost on advisers to £79.4m despite the regulator seeing its overall costs increase.
In general, the FCA's budget is going up by 2 per cent to £537.7m which the regulator said will meet its commitment to keep its spending flat in real terms.
But advisers say their main concern regarding costs for the year revolve around PI insurance costs.
At the start of the month, the FCA increased the Financial Ombudsman Scheme’s compensation limit from £150,000 to £350,000, despite insurers forecasting a hike in PI insurance premiums that could "cripple" advisers.
The regulator stated the move would create a "more focused" advice market. Board minutes from an FCA board meeting suggested they were amenable to the idea the increase would lead to a smaller number of advisers and "affordable advice".
FTAdviser has heard of cases where advisers saw their PI excess go up as much as tenfold for the coming year as a result.
Commenting on today’s announcement, Dave Penny, managing director of Invest Southwest, said: "It is good news adviser fees are set to fall 1 per cent.
"But I suspect this will be more than offset by what is coming our way in PI costs as a response to the Fos limit being increased to £350,000.
"There is talk of advisory firms having to share liability with PI firms which would have a large effect on capital adequacy requirements. If we are not compelled to share liability, there will surely be a significant increase in premiums.
"Either way, this is what is on my mind as regards to costs in the next year or so and I’m afraid to say a 1 per cent drop in FCA fees is unlikely to allay my concerns."
Paul Stocks, financial services director at Dobson and Hodge, agreed the regulatory costs of running an IFA business would continue to rise.
He said: "I saw the FCA fees had fallen, but I would anticipate that costs will continue to rise due to increasing PI costs.
"I also wouldn’t expect the Financial Services Compensation Scheme levy to fall in the short term. It feels like the costs arising from the actions of others falls more and more on those who remain."
While fees for investment advisers are set to fall, those for mortgage advisers are actually going up.
Mortgage advisers, alongside home finance providers and arrangers, will pay the watchdog a total of £17.6m — a 4 per cent increase on the previous year.
Robert Sinclair, chairman of the Association of Mortgage Intermediaries said the FCA's hike on mortgage brokers fees was disproportionate to inflation and other sectors.
He said: "We welcome the FCA’s overriding statement that they are trying to control their costs in line with inflation.
"It’s just disappointing to note however it’s only the mortgage and general insurer distribution costs that are seeing an increase in fees of more than twice the rate of inflation."
Mr Sinclair said the rise in mortgage broker fees was at odds with the FCA's statement that cost increases were attributable to EU withdrawal and new activities in the market which didn't directly impact the mortgage sector.
The FCA has stated advisers will not have to shoulder the cost of Brexit or the regulator's new remits, including the regulation of claims management companies.
imogen.tew@ft.com
