Better treatment for advisers on FSA fees

12 February 2010 8:00 am

If you don’t have a crash, your car insurance premiums go down. Those who are responsible for accidents pay most. That is fair.

Last year, the Association of Independent Financial Advisers’ campaigning work saw a material difference between the FSA’s fee proposals and the actual bills that landed on members’ doormats. I hope that this year the FSA will show forbearance and recognise the financial position of firms when assessing fee levels.

The FSA recently published a fees policy paper that provided some fascinating insights into its thin-king about how fees will be set in the future - and today’s cost allocation between various fee blocks.

I was particularly struck by how much intermediaries pay compared with banks - those firms in the Aifa camp contribute as much as 19.2 per cent of the FSA’s income whereas the banking community were only offering 28.5 per cent of the regulator’s income.

Yet, given the scale of the regulatory and systemic risk posed by those organi-sations, the FSA is in danger of offering them “regulation on the cheap”. Can it really be the case that the intermediary community accounts for one in five employees at the FSA or that we get a day a week of every employee, including Lord Turner?

I have excluded the general insurance fee block from my calculations as that would even more over-balance the numbers. I worry that cross-subsidy is taking place, with small firms shouldering the costs of big firms.

Some picked on the fact that the FSA had overspent on hotels but other significant news was that the National Audit Office was to become the regulator’s official auditor. The NAO will also review the Finan-cial Ombudsman Service, both of which are changes that Aifa has been campaigning for. This will give cheer to those who believe that regulation is only justified if it is prop-ortionate and accountable.

A strong auditor breeds a better cost-control culture and can imbue an organisation with a real sense of the value of money. Additionally, given the NAO reports to the public accounts committee, a very welcome line in regulatory oversight has opened up.

The FSA proposes asking firms to hold more capital, fund the costs of changing their business model, arrange finance to ensure they can trade-through the removal of provider factoring, ensure all advisory personnel meet new qualification standards and have systems and proc-edures that can survive the new more “intrusive” regulatory scrutiny. All these must be completed by the end of 2012.

They must be achieved against the backdrop of the longest and most severe recession since the second world war and look after the needs of clients too.

It may be entirely appropriate and justifiable to increase the FSA’s budget this year so long as the right people are being asked to pay the right share of the costs.

While the banking community almost toppled the UK econ-omy, IFA firms contin-ued to top the league of “most trusted” financial firms. We traded through the recession with no state or taxpayer help. It would not do for us to have survived the war simply to be lost in the peace.

Chris Cummings is director general of the Association of Indep-endent Financial Advisers

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