Eight firms have decided to leave as a result, while 22 are looking at ways to try to reduce their fees to minimise the impact of the charge, which will come into force in two months’ time.
In an email, seen by FTAdviser, the insurer-owned advice business revealed from April it will move to a minimum fee of £20,000 a year for all ARs advising on pensions and investments.
However, those who solely advise on mortgage and protection will continue to be charged based on annual turnover.
According to John White, chief executive officer of wealth management at Sanlam, the move is expected to hit 30 out of 100 ARs, but he said it should only have a negative impact on sole traders with a lower turnover.
He said eight of the 30 had decided to leave the network while the remaining 22 were looking at ways they can work with Sanlam to try and reduce their fees through aligning more with the network’s processes.
Mr White said: “The only change we have made to our pricing structure is to increase the minimum fee and this will only affect firms that have relatively low turnover, ie firms that operate as sole traders.
“Each firm is a different size and deals with different types of business so we are working with each one individually to see how fees may be reduced.
It is understandable that Sanlam wants to maintain profitability but increasing fees to a minimum of £20,000 pa with two months’ notice is a bit of a blunt instrument. - adviser“We are not necessarily going down the lines of a product push, it is more a case of a firm becoming more aligned with the processes of the main Sanlam Wealth business.
"We already have the templates, infrastructure, fact finds and back office to run more efficiently, which will drive down costs and enable the AR to have a lower fee.”
One adviser, who wished to remain anonymous, said such a move would drive small advisers out of the industry.
He said: “It is understandable that Sanlam wants to maintain profitability but increasing fees to a minimum of £20,000 pa with two months’ notice is a bit of a blunt instrument.
“When you consider the bulk of the fees paid to the likes of Financial Ombudsman Service, Financial Services Compensation Scheme and the Financial Conduct Authority are a percentage of turnover, this comes across as Sanlam wanting to get rid of smaller firms, but not wanting the bad publicity that would come with rescinding agreements already in place.
“It's getting harder to trade as an IFA and this really isn’t going to help increase the numbers of IFAs. There would be no surprise if some firms decided to call it a day. Some may seek to merge with other practices, but I’d expect most will just hang their calculators up.
“This certainly doesn’t fill us with love and enthusiasm for Sanlam.”
But while Sanlam said it regretted having to make the decision, it defended the reasoning behind moving to a new fee structure, citing increases in costs due to industry changes and regulation, such as upward hikes in professional indemnity cover and the FSCS levy.
Mr White said it was also so the firm could ensure it could keep control of the advice process and make sure advice being given was to the required regulatory standards.
He said: “The new few structure has less to do with the direct costs of regulation, as these come with the industry. We know that we have to take these costs into account.
“But these costs are increasing and starting to hurt firms more, which is why many firms like the security of a network so they can stabilise their costs.
“Raising the fee means we can be sure we keep control of the advice process and advice is to the regulatory standards required. It allows us to ensure ARs’ cases are being reviewed accurately and on time, and that they have good training and competence behind them.
“Narrowing the network membership and concentrating on larger firms that can cope with this is a preference.”
In the email Sanlam expressed regret at having to make this decision, acknowledging the impact it might have on some.
However, according to the email: "In the current regulatory environment, [we] need to ensure Sanlam Partnerships is sustainable and will provide us with a platform for growth during 2020 and beyond.
“We will continue to provide a robust regulatory environment for our members and the implementation of a minimum fee enables us to maintain our continued high standards for your business and also enables your business to continue to operate as you are now.”
Mr White pledged that Sanlam would work with firms to make the move to the new fee structure as smooth as possible.
amy.austin@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
