The FCA has published its proposed allocation of fees. Initially, I thought intermediaries in general were being asked to foot a rather steep bill, but now we have seen the detail, I have more serious reservations about the costs for advisers.
The FCA tries to apportion costs to fee blocks dependent on its proposed activity. If its plan of action reflects the risks it faces (which it is meant to), the fees are a measure of the risk of consumer detriment the FCA is trying to mitigate.
Fees for the provision of investment advice (A13) will be just over 10 per cent of the FCA’s costs. When including those holding client assets, the figure hits 20 per cent. Does anyone really believe advisers represent 10 per cent of the risk of consumer detriment?
It feels wrong to say advisers present a greater risk of consumer harm than either the life or general insurance sectors or mortgage lenders – especially as, according to FSA data, adviser numbers fell by 25 per cent in the 12 months prior to RDR.
I say this for two reasons: the FCA’s stated direction of travel as a regulator and its recently published business plan.
The FCA intends to focus much more on product risk. In a recent speech, Martin Wheatley outlined where he thought the FSA’s old model of consumer protection failed.
That model was based on consumers being rational and the assumption that, if they were provided with sufficient information, they would make informed choices in their own best interests. Behavioural economics tells us they do not.
So the FCA has decided it needs to look more at consumers’ interaction with the marketing process and the products themselves.
A glance over the FCA’s business plan does not suggest the regulator thinks financial advice represents a significant consumer risk in 2013/14. Measuring the importance and weight of the priorities is an inexact science but looking across the five objectives, only the follow-up to the RDR is mentioned specifically with reference to financial advice.
This might be expected as the FSA had just spent six years of analysis and rule-making to reduce risk in the sector. But I would be shocked if this represents 10 per cent of the FCA’s agenda over the coming year and it certainly does not represent 10 per cent of the risks posed to consumers.
I understand that the FCA tries to apportion its costs on the basis of its work programme, but looking at this in aggregate, it does not make much sense to me.
Part of the problem is that the modelling reflects too much the FSA’s old agenda and not the FCA’s new one.
The FCA is right to say it will review setting fees for the future. But it needs to look hard at the allocation of costs for
this year and ask itself whether that matches its assessment of the risks to consumers and its work programme.
Chris Hannant is policy director at Apfa