Apfa argues for regulatory fees overhaul based on income

Caroline Rookes
Apfa policy director Chris Hannant

Apfa has called for regulatory fees to be based on income rather than the current fee block system, arguing it would make adviser costs more predictable.

The Financial Conduct Authority announced in April it was carrying out a review into the way firms’ regulatory fees are calculated, which could see the current fee block model scrapped and replaced with an alternative model.

Options under consideration include not segmenting the industry and charging fees based on income, segmenting firms via fee blocks or risk categories, and charging fees on a retrospective basis.

While advisers are currently charged fees based on income, rather than headcount as was previously the case, this is still within the current fee block structure.

In a letter to the FCA, Apfa argues basing fees purely on a firm’s income is the best way forward.

Director general Chris Hannant says: “Our view is a common measure approach, based on income, is preferable to the current fee blocks. It has the merit of simplicity and relative predictability. It effectively uses size as a proxy for risk and provides a straight forward link between the size of an organisation and its share of the FCA bill.”

Hannant admits getting rid of the current fee model where firms are charged based on the type of business they write may make it more difficult to allocate different costs to different sectors.

But he adds: “Given the current method, despite the best efforts of FCA to allocate costs appropriately, results in a flawed outcome, we do not see any merit in persevering with it.”

Apfa says if income-based fees are not adopted, the FCA should at least consider merging some of the existing fee blocks, such as A13, which covers many financial advisers, A18, which cover mortgage brokers, and A19, which covers general insurance brokers.

The trade body says the minimum fee block, where firms earning less than £100,000 pay £1,000, should be kept under any new system.

It has also called for the FCA to fix its budget for the next three years, providing a cut in real terms in firms’ regulatory costs.

Apfa says when setting its budget the regulator should also take into account the costs paid by firms for section 166 reports, which are ordered by the FCA and check for weaknesses or failings in a firm’s practice.

Advisers in the A13 fee block are paying a total of £38.1m in regulatory fees this year, up 16 per cent from £32.8m in 2012/13.

The cost burden is being spread among 6,788 firms, compared to the 7,086 firms in the A13 fee block last year.

Around 42 per cent of FCA firms pay the minimum fee of £1,000.