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Advisers welcome move to prevent FCA fees subsidy

Advisers have welcomed a move by the FCA to ensure large firms are not subsidising the regulatory fees of small firms. 

In the FCA’s final fees and levies paper for 2014/15, published last week, the FCA said it will consult in October on changes to the way it calculates minimum annual fees.

Now, firms with annual income of less than £100,000 pay a minimum fee of £1,000, which will remain unchanged in 2014/15 for the fifth time.

Across all regulated firms, 42 per cent pay the minimum fee. Of the 3,806 firms in the A13 fee block, which relates to advisers who do not hold client money, 41 per cent pay the minimum fee.

The FCA says four trade bodies representing smaller firms supported the proposal to keep minimum fees unchanged, but one large insurance firm and three trade bodies representing insurers and investment managers and advisers did not.

It says: “They said this was resulting in larger firms increasingly cross-subsidising smaller firms and that some check should be introduced.”

The FCA says possible alternative calculation methods include keeping the current £1,000 fee as a baseline and linking it to inflation or movement in regulatory costs.

It will also consider linking minimum fees to the costs of specific regulatory functions, such as its firm contact centre and regulatory reporting. Linked fees would be fixed for three years providing costs remained relatively stable.

Capital Asset Management chief executive Alan Smith says: “In the same way that advisers must avoid cross subsidy in the way they charge their clients, the FCA must also do this in the way it raises fees. If almost half of firms are paying the minimum fee, then this needs to be reassessed.

“To link the minimum fee to inflation would be to merely tinker around the edges of the issue – a more fundamental review is needed which ensures firms are paying an amount that is proportionate to the regulatory resources they require.”

Apfa director general Chris Hannant says: “It is welcome news the FCA is looking at minimum fees. But we need more detailed data on how this would impact firms before we can look at the relative merits of alternative models.”

The FCA consulted on 2014/15 regulatory fees in March. The regulator proposed charging A13 advisers £68m, down 19 per cent from £83.6m in 2013/14.

Last week’s paper confirms the proposals, which include the merger of the A12 and A13 fee blocks. The A12 block relates to advisers, dealers and brokers who hold client money.

The FCA will create a separate fee block, A21, for firms carrying out investment business where their permissions include safeguarding or administering assets. The changes are designed to correct an “anomaly” which meant firms holding client money were paying a lower fee per £1,000 of income than firms which do not hold client money. 

Money Marketing revealed in November advisers in the A13 fee block have been overcharged by £118m over the past five years as a result
of this.

Adviser views

Tim Page

Tim Page, director, Page Russell

The fixed costs of doing business in the current regulatory environment are already penalising smaller firms, so
anything that helps to keep costs down for these firms has to be welcomed.

If the FCA does look to raise minimum fees, it will have to be careful not to raise barriers to entry and damage competition.



Philip Milton, managing director, Philip J Milton & Company

There are some inequalities in the current system and £1,000 is too low for a minimum fee. The FCA’s suggestion of linking minimum fees to certain functions like regulatory reporting sounds too complicated – fairer and simpler to link it to the number of registered individuals.
in a firm.



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 10th July 2014 at 9:42 am

    Mine is a small firm but, because I subscribe to the services of a network which, by proxy, does much of the FCA’s work for it and because the FCA insists on classifying networks as large firms instead of what they really are, namely collectives of small ones, the regulatory levies that I have to pay are completely disproportionate relative to my relatively modest turnover. As a network member I should receive a DISCOUNT on my levies, not be charged a premium.

    What are you trying to do to address this APFA, not least because the networks contribute to the bulk of your funding?

  2. According to the financial services register Julian, you’re an appointed rep. As an exempt person, you don’t pay any fees to the FCA – your contractual relationship is with your principal, TenetConnect. Your principal’s on the hook with the FCA for all the business you write so yes, they’re a large firm. Seems right to me.

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