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Apfa argues for regulatory fees overhaul based on income

Caroline Rookes
Apfa policy director Chris Hannant

Apfa has called for regulatory fees to be based on income rather than the current fee block system, arguing it would make adviser costs more predictable.

The Financial Conduct Authority announced in April it was carrying out a review into the way firms’ regulatory fees are calculated, which could see the current fee block model scrapped and replaced with an alternative model.

Options under consideration include not segmenting the industry and charging fees based on income, segmenting firms via fee blocks or risk categories, and charging fees on a retrospective basis.

While advisers are currently charged fees based on income, rather than headcount as was previously the case, this is still within the current fee block structure.

In a letter to the FCA, Apfa argues basing fees purely on a firm’s income is the best way forward.

Director general Chris Hannant says: “Our view is a common measure approach, based on income, is preferable to the current fee blocks. It has the merit of simplicity and relative predictability. It effectively uses size as a proxy for risk and provides a straight forward link between the size of an organisation and its share of the FCA bill.”

Hannant admits getting rid of the current fee model where firms are charged based on the type of business they write may make it more difficult to allocate different costs to different sectors.

But he adds: “Given the current method, despite the best efforts of FCA to allocate costs appropriately, results in a flawed outcome, we do not see any merit in persevering with it.”

Apfa says if income-based fees are not adopted, the FCA should at least consider merging some of the existing fee blocks, such as A13, which covers many financial advisers, A18, which cover mortgage brokers, and A19, which covers general insurance brokers.

The trade body says the minimum fee block, where firms earning less than £100,000 pay £1,000, should be kept under any new system.

It has also called for the FCA to fix its budget for the next three years, providing a cut in real terms in firms’ regulatory costs.

Apfa says when setting its budget the regulator should also take into account the costs paid by firms for section 166 reports, which are ordered by the FCA and check for weaknesses or failings in a firm’s practice.

Advisers in the A13 fee block are paying a total of £38.1m in regulatory fees this year, up 16 per cent from £32.8m in 2012/13.

The cost burden is being spread among 6,788 firms, compared to the 7,086 firms in the A13 fee block last year.

Around 42 per cent of FCA firms pay the minimum fee of £1,000.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. What a coincidence – the FCA want to charge us a percentage of income but they don’t accept that we want to charge our clients on a percentage basis… Perhaps they feel the man in the street doesn’t understand how to calculate percentages. The rest of the world talks in percentages!
    Also I want to know how my money is being spent at the FCA and understand how they are controlling costs/budgets; or are they not? a 16% rise in costs in a year is unacceptable. We should take a class action against them or we will forever remain downtrodden.

  2. This has been the case for a while……why do you think the FCA wants so much detailed financial info from each IFA.
    A risk discount should also be made for lower risk firms e.g without investment authorisations or protection & GI firms.
    Either way Block or % based the fees will go up because there are 20000 fewer mortgage brokers and 11000 less Investment authorised advisers paying fees than 4 years ago.
    Do the maths and the only way fees are going in UP

  3. I’m with you Anonymous @ 12:15, where do I sign up?

    This really is getting out of hand…

    Hardly a week goes by but we read about something new which the FCA have conjured up.

    More often than not, this results in them having a go at the “good guys” who comply in every way possible and, just as often, they are looking at ways of obtaining more money from us.

    Why, after all the exams are out of the way and those of us that remain in this fantastic industry, are getting our lives back together and making headway with the whole charging fees malarkey, can they (FCA) not turn their attention to something and/or somebody else.

    Goodness knows, there’s enough industry based baddies out there to keep them busy and fill their coffers.

    If that doesn’t keep them busy enough, they (FCA) could so easily turn their attention to a number of our beloved product providers and haul them well and truly over the coals…

    Is it just me, or do any other readers/subscribers think that certain product providers these days are content to offer an utterly abysmal level of service and think nothing of it?

    For years now I am of the opinion that many of us love and hate this industry in equal quantities and, so long as it doesn’t sway too much past the half way mark, it is still a great place to work.

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