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Independent advisers generate just a tiny portion of the total net revenue produced by the industry yet contribute a far larger chunk of its annual costs, an economics team has found.
The initial estimates of a ‘forensic economics' business hired by AIFA to scrutinise the FSA's budget found the net revenues of IFA firms represent about 2% of the income of the financial markets regulated by FSA.
However, it concludes advisory firms pay 25% of the regulator's total costs.
"IFAs are therefore burdened with a disproportionate and unfair share of the costs of regulation which are ultimately and inevitably met by consumers," AIFA policy director Andrew Strange says.
The findings of the forensic economists will form part of AIFA's response to the FSA's consultation on its rates proposals for 2010/11, which closes on Monday 12 April.
In February, the FSA announced the annual funding requirement (AFR) for IFAs will fall from £43.8m in 2009/10 to £40.2m in this financial year. This is despite its total AFR climbing 10% to £454.7m.
The minimum fee for all regulated firms will be £1,000 with a ‘variable periodic fee' on top of that increasing in direct proportion to the size of a firm - on a ‘straight line' basis. The more permitted business a firm undertakes, the more fees it will pay.
AIFA says the present FSA model means the FSA can only allocate about 50% of its annual costs directly to its 26 fee blocks. It says it needs to revamp its cost allocation model so the remaining 50% is allocated to the "right" activities and firms.
"The way the regulator allocates costs is in urgent need of a fundamental overhaul," Strange says. "IFAs are burdened with a disproportionate and unfair share of the costs of regulation which are ultimately and inevitably met by consumers."
The FSA's final fees for 2010/11 will be made by its Board at its May 2010 meeting.
To respond to the FSA's consultation, click HERE. To see the full consultation paper, click HERE.
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TOLD YOU SO
How many time do i have to repeat myself. If IFAs represent LESS than 1% upheld complaints, then give me proportinality. E.g. Less than 1% regulations, less than 1% costs, less than 1% aggro etc etc. In reality that's where the argument comes in that IFAs do not cause any real problems hence NO REGULATIONS REALLY REQUIRED. Leave the IFA alone as there are many hurdles to jump before you can trade anyway. We need a grown up government who understand basic economics, not a financially illiterate party such as Labour.
Posted by: Incompetent Regulators Awards Team
TCF
So, the question is; if the fsa were to have a "thematic review" into the costs ifas have been forced to pay over the years,will redress be available to those stakeholders found not to have been treated fairly?
Posted by: LOL
Dysfunctional
The FSA is a totally dysfunctional business. Not only does it not get its economics right, actually not even in the right ball park, it continually produces the opposite effect to that which, one assumes. it intends. In order to regulate the financial market concentrate your resources on the part that has the least overall effect. So now we know why they missed RBS, HBOS, B&B, Equitable etc. In order to ensure a strong and virile advisory market for a broad range of society, pile on costs and qualifications that make it economic for the adviser to turn to the richest sectors (who are generally too weak to look after themselves!). In order to create a growing company with a strong salary and bonus structure get everything wrong, and then complain that you've got it wrong because there are too few employees and they are paid too little. And then get someone else to pay for it. Only the FSA could get away with this because it is not in any way accountable. It is not a structure that should be tolerated in a democracy. Even incompetent Prime Ministers and MPs are ultimately accountable for their actions. But not the FSA. Even if it did a good job, which it does not, it still should not exist in its current format.
Posted by: Glen McKeown
contribution to financial services.
Another organisation who deems itself able to answer all the questions concerning financial services. It would be interesting to find out the total cost of different organsations who are putting their little toe into financial services and coming up with weird and wonderful results. We have the FSA, FSCS, FOS, Which, government, and may other mini organisations putting their daily input into things without looking at the outcomes.
Posted by: terry arch
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IFAs costs burden
In my opinion it would be fairer all round if clients paid for regulation etc by way of a levy (tax) on each transaction made and whatever type. This would be along the lines of the premium tax for genral insurance which seems to have been accepted without so much as a whimper and this was pure taxation for the treasury! So, for probably less than 1% levy of the value of the tranaction clients would have their own 'insurance'.
Posted by: Derek Vivian