The FCA fee block containing most advisers has been overcharged by £118m over the past five years, Money Marketing can reveal.
The FCA said last month there is an “anomaly” in the way the A13 block – which relates to advisers who do not hold client money – interacts with A12, a separate fee block for advisers, dealers and brokers who hold client money. It means A13 advisers have been paying a higher fee per £1,000 of income than firms which hold client money despite requiring less regulatory scrutiny.
The regulator has proposed merging the A12 and A13 fee blocks for 2014/15, resulting in firms paying £2.84 per £1,000 of income, compared to £6.89 for A13 firms. Firms which hold client money would pay an additional fee.
Money Marketing calculates this would see A13 advisers paying a total of around £16.5m a year compared with £39.2m for 2013/14, meaning they are overpaying by £22.7m this year or by £3,354 per firm in the fee block.
Prior to 2013/14, advisers’ fees were calculated based on the number of approved persons rather than income. The FCA admits the anomaly has existed for some time.
In 2012/13, A13 advisers paid £1,191.47 per approved person. A12 firms paid £591.58 per approved person. Between 2009/10 and 2012/13, A13 advisers paid a total of £161.2m in fees. Under the new system, they would have paid £66m over the four-year period instead.
Over the past five years, advisers have been overcharged by some £117.9m.
Jacksons Wealth Management managing director Pete Matthew says: “This is a fundamental cock-up. Any idiot knows a firm which holds client money poses a greater regulatory risk than one which does not, so it is a travesty this has happened. If I overcharged a client, I would repay.”
Apfa director general Chris Hannant says the FCA ought to rebate advisers and needs to urgently correct the model.
An FCA spokeswoman says: “Many IFAs pay the minimum £1,000. The FCA is revising its policy but the new approach to fees is still under consultation.”