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Aifa warns FSA fee move punishes successful firms

Aifa has warned that the FSA’s move to base adviser fees on income rather than the number of advisers risks punishing successful and profitable businesses.

The FSA published a consultation paper this morning on regulatory fees and levies for 2012/13. It proposed changing the fee tariff for certain fee blocks, including the A13 block which covers many IFAs, from the number of authorised persons per firm to the level of income generated by the firm.

Aifa director general Stephen Gay (pictured) says: “Income based fees can run the risk of decreasing efficiency and productivity in the profession, punishing those firms that have built successful, profitable businesses with higher than average ratios of income per adviser.

“Many of these firms have based their success on greater investment in compliance and research, meaning they also present lower regulatory risk.”

Gay wants to see the FSA’s fee regime based on the risk presented by each firm instead.

The consultation on the proposals closes on February 6.


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Why is this a surprise, I said two years ago the regulator needed Income to fund its gravey train and with 40% fewer IFA’s post 2013 and probably 60 % fewer post 2014 they will have a big funding gap.
    Mortgage broker numbers are down from 32000 to 8500 in 3 years.
    I just hope enough IFA’s hang on before this madness stops………give the client the choice commission or Fees, with advice from a qualified IFA.

  2. Derek Bradley ceo 28th October 2011 at 4:58 pm

    This is simply another form of”taxation”, in this case as AIFA suggest for successful firms. Could it be that the suggestion that there may be fewer IFAs post RDR means that the FSA “Business model” has to change in regard to the revenue streams and this is a simple way to achieve that by hitting success and punishing productivity?

  3. Another pissed off IFA 28th October 2011 at 5:04 pm

    They’re not going to stop squeezing until the pips squeak.

  4. The largest firms are the most “efficient” due to economies of scale. This is not to say that a small firm is not “successful”, merely that it does not have the same opportunity to make the same level of profit per RI as a “mega-firm”. Ergo, it seems reasonable to me to treat the fee as a per capita “income tax”.

    For whatever reason we do not all want to work for a mega-business for the sake of efficiency. Some of us prefer to work in small units or as individuals. Does that make those of us who work in this way “unsuccessful”? I do not think so.

  5. Having culled some 10 to 20 per cent of Advisers its now time to base fees on turnover. I have an idea: why not let Advisers continue with their existing quals and then they could contribute their fair share?

  6. The FSA are not running a franchise. The more efficient and successful we become the more we have to pay a regulator and those who turn over little and deliver probably as much pay less.

    This would be too far. The regultor should start with a cost per adviser which is scaled down as numbers increase and then charge per product area of authorisation – if I do not advise on DB pensions why should I pay for the regulation of them? And by the way, I have just invented something and I think I will call it a ‘wheel’ – would anyone wish to market this great idea of mine?

  7. Sounds like a good idea to me, in that it reduces the barriers to entry for new firms who will shake up the status quo. Why should a new entrant IFA with a handful of clients, but plenty of experience and qualifications, pay the same as a well-established business with income an order of magnitude higher? Bring it on…

  8. In my opinion this penalises registered individuals who are prepared to pay for proper dedicated support such as Paraplanners and back office support. Such individuals are prepared to pay for this support to ensure their businesses are run properly yet it would only be turnover that is used as a measure.Overheads must come into the equation if you were being fair. This could lead to support being withdrawn and services becoming less proffessional at time when we are trying to do the opposite.

  9. Paul Stanley
    I think you will find the established business has earned their income.
    It was not handed to them on a plate.
    Where exactly will the “new entrant IFA” have gained all this experience?
    Agree with Derek, overheads must be taken into account otherwise a lot of support services will be scrapped.

  10. “Many of these firms have based their success on greater investment in compliance and research, meaning they also present lower regulatory risk.” Hmm. That seems to me to be a bit of a sweeping assumption.

    What about all the other firms whose success has been built not on greater investment in compliance and research but simply on more aggressive marketing, selling and higher charging rates?

    To my way of thinking, as a small trader who pays a percentage of my turnover for compliance and research and with a virtually unblemished complaint record, it’s just a matter of scale, so regulatory fees calculated simply as a percentage of turnover seems fair. The bigger your turnover, then surely, all other factors being equal, the greater the regulatory risk your business poses. I don’t see how a bigger turnover can be equated automatically to higher quality. Certainly that hasn’t been the case with a good number of larger firms who’ve got into regulatory hot water for one reason or another.

    Ideally and probably most fairly, a firm’s levy bill should be based on a combined number of factors such as the type of business it transacts, the number of transactions it undertakes per year, its complaints record, the qualifications of its RI’s, its number of RI’s and so on, perhaps according to a points system, reviewable at three yearly intervals.

    The trouble with that , though, is that it would be very time consuming, open to dispute, and difficult for the FSA to predict its total income. The use of a points system might well result in a lot of IFA firms paying considerably less than they do now whilst the banks might well find themselves being charged a lot more. So we have to accept a system based either on the number of RI’s or calculated as a percentage of turnover. Being proportionate, the latter system seems to me the fairest.

    Plus, of course, the FSA’s total operating budget should be subject to independent regulation but, of that, there seems to be little if any prospect.

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