The Financial Services Authority (FSA) has ruled out carrying out further research into how adviser fees are calculated, despite comprehensive feedback from Aifa which says the current system is not proportionate.
In a consultation paper on regulatory fees and levies, published today, the FSA says it cannot justify carrying out further review of fees and costs for IFAs.
Aifa submitted feedback to the FSA as part of the regulator’s strategic review of its costs allocation and fees model for 2009/2010 which calculated that IFAs paid a disproportionately high proportion of the FSA’s indirect costs compared to providers.
The trade body made two proposals: that indirect costs should be calculated according to the proportion of revenue advisers receive compared to the financial services industry, or that adviser fees should be based on their proportion of revenue compared to that of product providers.
In today’s paper, the FSA says: “The main consensus across all sectors of the industry is that we should move further towards a system of fees either based on the actual costs of regulating individual firms or on their individual risk profiles. (article continues below)
“Given that the revenue model is moving in the opposite direction to this, we do not believe we can justify undertaking further research or work on it. However, we are happy to consider any further research undertaken by product providers and intermediary market participants working together to address practical issues and impact for both.”
Aifa consultants presented evidence to the FSA in November 2009 indicating that 69% of indirect costs and overheads were not allocated to fee blocks, meaning the cost is spread out across the whole industry.
They calculated that if fee blocks were grouped into related activities, such as combining different adviser groups, then the total regulatory cost to advisers was almost equivalent to the costs allocated to deposit-taking firms, which was not proportionate to the risk they posed.
The FSA says it did not recognise this 69% figure, saying indirect costs and overheads are not the same thing.
Other trade bodies responded to the strategic review for 2009/2010 fees arguing that the current system of fee allocation lacks transparency.
The FSA says it accepts this point, and will clarify its explanation of direct, indirect, and overhead costs in a separate consultation paper next February.