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Regulation costs take 20% of commission

Regulatory costs typically eat up 20 per cent of commission and are so high that they should be disclosed under the payment menu, says Informed Choice managing director Nick Bamford.

Based on an internal cost review conducted earlier this month, Bamford says 19.64 of every 100 in fees or commission generated at his firm is now spent on regulation. This figure includes a combination of FSA membership, Financial Services Compensation Scheme fees, audit costs, paying for compliance services and PI insurance.

Bamford says the regulatory costs plus 25 spent on running costs and 25 spent on staff, he is left with 30 profit for every 100 of fees or commission generated. His figures do not take into account the recent big increases in regulatory costs when the FSCS and FSA membership fees for the year to March 31, 2006 take effect.

He argues that the payment menu system, which will compare an IFA’s maximum commission with the market average, does not reflect IFAs’ real earnings and is he urging advisers to disclose the regulatory cost in their fee/commission breakdown.

Bamford says: “The problem is that we have to disclose that 100 to the consumer and they perceive it as profit. Why should I not be allowed to tell the customer what happens to that 100 in the menu?”

FSA spokeswoman Vanessa Wood says: “There is nothing to stop the IFA explaining the costs verbally to the customer. There will be a review of depolarisation and any suggestions put forward will be considered.”

Wilson Dean Financial Services director Nick Lincoln says: “The payment menu will give customers enough to read as they are. If you get into this level of detail, then you risk losing the client’s attention altogether.”

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