Soaring costs pile pressure on networks to maintain charges

National and network advisory businesses say they may be forced to raise charges if regulatory and insurance costs continue to climb.

Honister Capital and Personal Touch Financial Services have been able to absorb one-off costs at no extra charge to members, but say this policy will be "reviewed" if they continue to mount.

Last week, Positive Solutions said it was increasing retention rates for its 1,200 partner advisers after paying almost £2m in levies to the FSCS and seeing professional indemnity insurance (PII) premiums rise 50% since 2009.

The Aegon-owned national IFA said it too had previously absorbed these costs on the basis they might be temporary, but it now concedes it can no longer do so.

"We did not want to raise charges," Positive Solutions CEO Jim Reeve said. "This is a major message for the marketplace: the cost of providing the security we provide to partners is rising."

In the last 12 months, firms offering investment advice have paid a combined £151m toward compensating customers of failed investment businesses, including Keydata. The latest bill topped £90m.

Alan Easter, strategy director at Honister Capital, says: "We can not get away from the fact that costs are rising. We pay FOS, FSA and FSCS fees. The question is whether we can absorb all of these costs, or some of them.

"We are still figuring that out."

John Ruddick, chief operating officer at Personal Touch Financial Services, adds: "We absorbed the latest FSCS interim levy. We did not feel it was right to pass it on to members.

"But this is something we would have to review if we felt it was becoming the norm rather than the exception."

Ruddick said he was confident the market would "settle down" and that events such as the collapse of Keydata would prove "quite unique".

But Positive Solutions has told its partners the increases are unlikely to be temporary.

"Over the last two years, FSCS costs alone have been £1.9m, FSA costs have increased considerably, and PI costs have increased by 50%," it said.

"In recent years we had absorbed these costs on the basis they might be temporary, but it is clear now that, at least for the medium-term, they are not."

Keith Richards, group distribution and development director at network Tenet Group, adds: "The unfair and inappropriately-allocated interim FSCS levy not only angered all IFAs, but highlighted the overall rising costs which show no sign of being controlled or reduced in the foreseeable future."

Positive Solutions CEO Reeve admitted the company's trading losses in recent years had contributed to its decision to increase charges, and firms said profitability and capital reserves have helped them soften the blow of rising costs.