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FSA considers basing adviser fees on income

The FSA is considering a restructure of adviser fees that will see them based on income rather than number of approved persons.

The FSA is currently consulting with the industry on possible changes to the fee structure, following an announcement in its 2009 business plan.

It has confirmed to Money Marketing that one proposal it is currently talking to trade bodies about is to base the IFA fee structure on income rather than number of approved persons.

The regulator has set up an industry working party meeting tomorrow, but says the process is at a discussion stage and it has not begun to implement any formal consultation.

The trade body for solicitor IFAs, Sifa, says the regulator is considering a change towards an income fee structure similar to that of the mortgage and insurance industry.

Sifa compliance director Ian Cockerill says: “We suspect this has been mooted as an idea after the FSA realised it is illogical to run two fee structures.

“It may be that the FSA thinks there wouldn’t be a lot of difficulty in changing the IFA structure, and haven’t realised there are a few things that stem from it that do potentially cause problems.”

Cockerill, who is part of the working party, says the new structure would penalise professional IFA firms who provide holistic advice for which the fees may relate to tax and other unregulated activities. He says: “How can a holistic IFA define what income came from regulated and unregulated activities?

“If they charge more for taxation advice and less for regulated activities thatis advantageous to the proposed structure, but on the other hand they might just charge a single fee, and will not know how to split any income made.”

Sifa says the move would also penalise success and efficiency and would favour small commission-based advisers.

Cockerill adds: “We think at the moment it seems that the model of this potential fee tariff follows a more commission-based sales model rather than an advice model.”

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. FSA considers basing adviser fees on income
    How about basing them on the performance of the FSA as a regulator? By that methodology, we’d have to pay -all.

  2. FSA Considers…
    Now this makes more sense than most of the stuff reported on in recent weeks, perhaps the silly season is coming to an end.

    As an IFA firm and one that also works with other IFA Firms working on their business development and RDR Transition we would welcome anything the FSA can do to make things better.

    Without seeing some more detail I would not want to pass opinion, however it certainly seems to make some sense.

    Richard Smith – IFA/Tech Guru
    http://www.theinternetconsultancy.com

  3. Going the wrong way
    If anything they should be doing the reverse i.e. requiring all advisers, i.e. someone with the title adviser giving advice on mortgages or protection to be approved persons and charging by headcount for mortgage advice firms and protection only firms.
    What has turnover got to do with the cost to the FSA of regulation, nor the risk of the business? The PI insurer charges for the risk and correct me if I am wrong FSCS is based on turnover even if FSA fees are not?
    Conversley, if it is turnover based, do they really think the banks will not simply do advice (yeh right) as a loss leader to keep their regulated turnover down and look to raise the money elsewhere on non adviser related issues. The otehr thing is the increasing number of non advised sales of mortgages and other products by certain groups and trying to get them treated as if they were execution only flies in the face of consumer protection. At least if the FSA changes it’s name to the CPA, they may struggle to get it approved as a Trade Description!

  4. Fairer than the prent system?
    How can anyone say that the proposal is unfair or otherwise until some figures are put on the table? As a sole practitioner – I prefer to remain that way – it seems a fairer system in principle that my fees are based upon my income. After all I do not enjoy the benefits of scale of larger and, more especially, humungous firms However it all depends how the cost per mille compares with the cost per RI doesn’t it!

  5. FSA considers basing adviser fees on income
    I vote that the FSA should be forced to base its levies on how well or otherwise it has performed its own regulatory duties over the past year (a strictly independent panel could formulate such as assessment), combined with the number of complaints against each regulated IFA firm. That way, most of us would be obliged to pay no more than peanuts!

  6. Charles Martin Prince 26th August 2009 at 4:57 pm

    FSA considers basing adviser fees on income
    OH! The world of unintended consequences: favour banks? favour commission only? Surely the cost of regulations is just about relative to the number of staff/advisers and activity. So therefore a “logical” base for fees should be numbers first (say at 80%), advisory and regulated business turnover (say 10%) and all other forms of turnover (say 10%) . No doubt we could all see something wrong with that but overall and over time it would probably work out to be a fair system. Perhaps commission should be double charged after 2012 !?

  7. FSA considers basing adviser fees on income
    So they are now thinking of penalising the successful IFA firms? You pay less if you are firm of useless? Makes sense, plenty of those around!

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