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Tom Kean: Advisers face fight for survival as regulatory costs mount

There is a very real danger that, given half a chance, someone like me who is fortunate enough to be able to vent their frustrations in this column starts to sound like a stuck record. But risking mildly offensive comments online, I am going to say this anyway because I believe it does make a difference.

With the slow motion, echo-ey thud of a film noir, our regulatory fees once again metaphorically land on the doormat and make us wince with ever-increasing pain.

Few outside of our profession would really have much sympathy at our plight, but it has become so expensive to be regulated that many are fearing the worst.

No longer is it an issue of the good paying for the errors and dishonesty of the bad – it has become a real fight for survival. Even the biggest and most profitable companies are beginning to cry out as the soul-sapping increases to regulatory fees have a material effect on their businesses.

If one ponders for a moment at all the quangos that now exist, it all starts to make sense.

The the FCA, the Financial Services Compensation Scheme, the Financial Ombudsman
Service, the Money Advice Service, Pension Wise, The Pensions Regulator, The Pensions Advisory Service, Citizens Advice, not to mention the plethora of commercial sites like MoneySavingExpert and the like, all adds up to a large army of well-meaning bureaucrats determined to justify their own jobs. And no offence to all the good folk who work at these organisations, especially the volunteers; my gripe is not with you. It is with the way this whole alternative industry has emerged, unchecked and mostly paid for by myself and the rest of the adviser profession.

I cannot help but see the glaringly obvious here, and it is not just me. There are plenty of those who can see that lots of the work undertaken by these organisations is readily undertaken by some of the others.

I have only ever worked in financial services, and even I am confused. I lobbied long ago that the MAS should have been strangled at birth, and that the well-thought of Citizens Advice be tasked with running what the MAS are trying, and failing, to do.

And I still cannot for the life of me work out exactly where TPR and TPAS fit in. It is no wonder people still do not know to only ever deal with FCA-regulated advisers and to fully understand if something seems too good to be true, then it is.

All I want is for the costs to feel like value for money, both for me and the consumer. The plain fact is all this “protection” does not seem to be working. Just this week I happened upon  a company which is very clearly a scam, but a very polished one nevertheless and deeply worrying. I am not sure what can be done about it though.

And here is my point. The unintended consequence of all this is the bad guys end up going deeper underground, further from the prying eyes of the regulator, leaving the rest of us to mop up the mess.

Tom Kean is director of Thameside Financial Planning



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There are 24 comments at the moment, we would love to hear your opinion too.

  1. I, like many others have recently received my annual bill and once again its increased. This time it works out at an increase of 60.2% for this year and a total of 87.4% over the last 2 years.
    I know I’m not alone and I’m sure the powers that be really do try to spend opm in a fair and proper way(sic), but just how much longer can an ever decreasing number of contributors contribute?
    I’m a mortgage broker but have to cough up for an IFA who has trouser-ed loads o’ money off SIPPs or selling dodgy investments ,I’m not even authorised to sell such investments or pensions but I have to pay the ever increasing costs to the FSCS to bale out customers of failed companies. Perhaps next time Martin Wheatley is in a restaurant I’ll pass my bill to him and see how he likes paying for something he hasn’t had!!!!

    • Well said Peter. Couldn’t have put any more succinctly myself!
      My FSCS Fees have risen ‘twelve fold’ – yes ‘twelve fold’ in the last three years!
      I, like you, am not authorised to give investment advice, just mortgages and protection. In any other sphere, this type of daylight robbery would be classed as Criminal! The sad, and ultimate, outcome is that the adviser population will shrink, the quality of advice will deteriorate and the cosumer will have little or no choice.
      Consumer protection at it’s best?
      TCF at it’s best?
      Customer outcomes improved?


  2. Tom – A good point and well made. The Tories came to power with promises of cutting down needless bureaucracy and have since gone on to create more in our industry.

    We are a chartered firm that has been going for 18 months with two FPFS qualified advisers, an experienced back up team and a partnership with a strong compliance team. We received our first bill yesterday and whilst we expected that it would be more that we had budgeted earlier in the year, it was beyond our top end forecast. We are therefore paying a lot for mistakes in the past that happened before our business was even incorporated! Astonishing!

    I have read with dismay of IFAs losing client money in various schemes involving things like Bulgarian property etc. and wonder how clients can take such nonsense advice in the first place and the FCA have not been able to detect what has been crazy practices much earlier to have led to more intervention before everything is lost and the firm is bust! I can only hope that changes made in the recent past are taking time to come through on the ground and that IFAs come together with a loud voice to bring about a fairer system to protect the vast majority of good work that goes on up and down the country.

  3. The problem with the FCA’s consumer ‘protection’ is that despite costing £0.5bn a year it simply doesn’t work and the industry still has to pay for the FCA’s constant and ongoing failure. Also it makes advice more costly and complex than it needs to be.

    A very simple solution would to be to stop the direct FCA regulation of advice. Advisers are instead authorised by their trade bodies and the FOS decides what is right and wrong retrospectively (as actually happens anyway).

    Product providers are still regulated.

    Only advice from an authorised adviser qualifies for the FSCS protection and then only across a very specific range of products. Products not listed are not covered and FSCS products display a branding on their literature and are listed on the FSCS website. Whilst I don’t like the FSCS funding model, I am far less concerned about bailing out standard products which are far lower risk.

    The rules would have to be changed so that advisers as well as their clients can challenge FOS decisions through the courts. That would significantly and quickly improve the quality of FOS decision making.

    The above would offer cheaper advice, it would bring new people into the advice profession because they would have the protection of the law and it would make the whole process easier and simpler for clients.

  4. Sensible comments! Although I’m sure it’s against EU law, as it would be a restriction of trade, to only allow pre-prescribed products.

  5. While not wishing to understate the impact of regulatory fees, there are other leeches on the pockets of IFAs, all of whom bleed the lifeblood out of the profession. The FCA mention platform client costs (independence and all that) and suddenly you find you have to have software that can quickly and reliably demonstrate that you have considered costs. Annually, that equates to 50% of our FCA fee. Back office software, research and analysis software, IT, compliance support, professional fees – ever asked yourself how much you pay to CII and compared that with your fees and levies?
    None of which the cow boys in the profession bother with. There is a need for a risked based approach to fees. A cliché may be bit a regulatory dividend for those that are committed to giving advice and can demonstrate it.

  6. There’s no easy answer but if they’re not careful the financial services industry will cease to exist in a future not so far from here if things don’t change. What new blood will come into an industry that is hell bent on regulating itself to death. How many people do we actually need in all of these organisations, and what qualifications do they have to regulate us in the first place?
    The FCA, the Financial Services Compensation Scheme, the Financial Ombudsman
    Service, the Money Advice Service, Pension Wise, The Pensions Regulator, The Pensions Advisory Service, Citizens Advice. Maybe it’s time to get out of the kitchen and start feasting at the table of non accountability?

  7. I dont think anyone would really suggest that the current system is confusing – though we aren’t paying for MoneySaving Expert. Nobody likes paying for anything when it appears to have little impact (ie. rip offs seem rife and continue to fill my inbox).

    However, unfairness and lack of clarity aside, many professionals or businesses have similar requirements – from medical practitioners, to travel agents – we are not the only group to have to pay for PI, compensation and regulation. It is part of the entry requirement. All I am asking for is fairness in the contribution for areas of advice provided for protection and a correlation to the size of the business, so that as a business we can plan our costs going forwards. This obviously also requires a common sense approach to limiting the long-stop as in other “professions”.

  8. ..err I meant I dont think anyone would suggest that current system ISNT confusing. (doh!)

  9. We also have to restrict our working capital to accommodate the capital adequacy requirements, money that could be put too much better use. The increase in CA has only been delayed as the powers that be know they are going to keep increasing the levies for all these quangos.

    We are also denied a legal long stop and to add insult to injury have now been made the police and moral judge as to what is and is not correct at retirement for individual consumers who do seek advice. We are told to do what we believe is correct and then will have to wait years, if not decades before we know if we will be held liable and face claims.

    Human nature is what it is and only at the point of extinction, at the point of no return will the Politician’s act. Their action will be to appoint the bodies that created the extinction to review the reasons why there are no financial advisers left, costing millions. The outcome will be that it was our fault as we failed to reduce costs and change our business practice as it could not possibly be their actions and failure to listen.

  10. The biggest levy increases have and continue to be those to the endlessly munificent FSCS, arising mainly from the failure of UCI Schemes and such like, the advice on which, it was decided a few years ago, is a regulated activity even if the products and funds themselves are not. The question that looms large is just what efforts the FSA/FCA made to regulate that advice? Virtually none that I can see. It’s an absolutely classic case of after-the-event regulation (despite the FCA’s perennial denials that it regulates by hindsight). Consider (and by all means correct me if I’m wrong):-

    1. Has the FSA/FCA ever required any special regulatory permissions to advise on unregulated investment schemes? To the best of my knowledge no.

    2. Has the FSA/FCA ever made any efforts to ensure that firms advising on unregulated schemes have in place proper PII cover to do so? To the best of my knowledge no.

    3. Has the FSA/FCA ever issued any guidelines as to what it considers to be proper procedure for advising on unregulated investments? To the best of my knowledge no.

    4. Has the FSA/FCA ever bothered to check and analyse the RMA Returns to identify which firms are advising on unregulated investments? To the best of my knowledge no.

    A few months back, the FCA asked the regulated community to supply examples of regulation by hindsight. Then promptly rejected all of them. So why did it even bother to ask in the first place? Its response was a foregone conclusion, rather like its so-called consultations on proposed new regulatory initiatives, the responses to which are never published for all to see and to debate in open forum, the regulator instead claiming to have “taken them on board”. Why do we even bother responding?

  11. Christopher Yates 29th September 2015 at 3:24 pm

    Very well written article, that raises a worry8ing concern for all us who are dedicated to providing a good value service. What mystifies me is when the FCA catches these companies selling the dodgy investments and hits them with large fines, why does this money go to the treasury and not into a fund to help pay the compensation awarded to the consumer by the FSCS.
    We need a risk based levy now more than ever before, if you are not involved in the selling of unregulated products, or transferring people out of final salary pension schemes you shouldn’t have to pay for those that are.

    Has RDR has made the cost of advice transparent? Yes I think it has.
    Has the consumer benefited from it?, I don’t think so as the increasing cost of regulation and the levies being imposed means the cost of advice has to increase so thereby making advice available to the few rather than the many.

    Not sure how that benefits the majority of the population?

  12. Here’s one for you. Having gone DA from network at the beginning of this year I have discovered that my company’s turnover is used twice to calculate the FSCS levy for 2 different firms for the 2015/16 year ie I pay for this year using my projected turnover (as part of my DA application) and my former network pays for this year using last years turnover (when I was an AR). 2 firms, 2 bills, same year’s levy. My former network now wants me to pay them. That would mean me paying the FSCS levy twice for 2015/16.

    Yes, the FCA admit it’s double charging, but those are the rules! Apparently! – “It’s just unfortunate”

    Well that’s alright then, I wouldn’t want Mr Neale missing out on his huge salary, massive pension contributions or hard earned bonus. It’s only someone else’s money!

    If I wrote what I really think, this comment would be banned.

  13. With regard to the various regulators I am reminded of the man asking a passer by in Ireland the best way to get to Dublin. The gentleman giving directions replied, “Well I certainly wouldn’t start from here”.

  14. So here we are, I agree with the article, it is putting in owrds all that we know. But the reality is that no-one is listening. There is no accountability fo rthese organsiations – they cock up and we pay for it. It will only end when there is no-one left to regulate.

  15. Ooops – should read the typos before I post – I guess you all get the gist though! Apologies!

  16. I think advisers have bigger problems to worry about

    What if PI cover is withdrawn, its all interlinked see here

  17. I hate these costs as much as the next adviser. The problem is that the regulator is totally failing to deliver consumer protection, particularly in respect of “advisers” selling UCIS products (which is where a good deal of the so called SIPP claims are coming from) We all have examples of this stuff in action but one in the last couple of weeks has left my head spinning.
    The UCIS in which my new client invested collects rubbish from households in Poland, transports said rubbish in specially designed vehicles to an incinerator. The rubbish is burned in the incinerator and the energy generated is then fed back into the electricity supply chain. What a great example of a “green new energy model” Well, it would be apart from the absence of a) an agreement with the local authority to collect the rubbish, b) the absence of the trucks and c) the absence of the incinerator!! Said UCIS is marketed by an authorised and regulated adviser here in the UK. As the client said to me “This is just a scheme isn’t it for turning my money into someone else’s money?” What could I say apart from “Yep, that sounds about right. But don’t worry I will be paying for it through my FSCS levy sometime soon!!”

  18. Anyone got any good news to share?

    • Yes, I am getting out within a couple of months. Investments only, moving to consultancy, clients happy, reducing charges, they make portfolio decisions. Bye bye, just ahead of the next crash no one sees coming.

  19. I won £30 earlier, am happy to share this out between all towards the cost of the levy.

  20. Re: Phil Sipocz’s post ~ Yes, the FCA admits it’s double charging, but those are the rules! Apparently! – “It’s just unfortunate”. Given that the FCA is FOREVER changing it’s rules and regulations, frequently just to make life even more difficult and costly for those it regulates, one wonders why it can’t be bothered to change this patently unfair rule.

    Were one party or the other to refuse to pay twice, presumably the FCA would either fine the network or cancel Mr Sipocz’s regulatory permissions. How can that possibly be anything other than a blatant abuse of power?

    Have you written to your MP Mr Sipocz?

  21. Of course one can sympathise with many of the posts. As ever Nick Bamford is the voice of logic& reason.
    However I would remind you of two pithy sayings:
    1) When the going gets tough, the tough get going
    2) It isn’t enough to succeed, others must fail

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