Proof of burden: rising costs for advisers

Published by James Jones-Tinsley on

Our expert

  • James Jones-Tinsley

    James Jones-Tinsley

    Self-Invested Technical Specialist

  • Estimated reading time: 5 minutes


    What is the biggest burden that advisers are currently facing? We were keen to find out. So during our workshop, held over three mornings at ‘Money Marketing Interactive’ (MMI) last November, we conducted a number of polls. 

    The over-arching title of the MMI event was “fighting advisers’ corner.” Our workshop focused on “the cost of regulation versus the cost of pensions.” 

    During the polls, attendees could select their choice from a range of options provided, with the responses tallied immediately afterwards for everyone to see. 

    Rising regulatory costs for advisers

    One poll asked “how has your cost of business changed since this time last year?” 68% of the respondents selected either “higher” or “much higher.”

    Another poll asked “have you experienced any material savings?” 87% of those who responded answered “no – none, or at least not enough to make a meaningful difference.”

    Both of these results were sadly predictable. 2020 has been another year of rising regulatory costs. In many cases, the annual hike in Financial Conduct Authority (FCA) fees and levy payments to the Financial Services Compensation Scheme (FSCS) have been significant enough to galvanise a letter-writing campaign by advisers to their local MPs, as outlined in my recent blog.

    However, the biggest surprise came with our final poll question when my colleague, Andy Leggett, asked the attendees “what is your biggest burden?” Whilst preparing our workshop ahead of the event, we both expected “FSCS levies” to be the overriding answer.

    Soaring PII premiums

    In fact, the top choice was “Professional Indemnity Insurance (PII) premiums” at 37.5%, followed by “the regulatory environment” at 28%. “FSCS levies” came third at 22%. This is far lower than we expected, albeit still of significance.

    Our polls offered proof of the burdens currently besetting advisers. 

    Taking the top three results above, it is no coincidence that, at a recent meeting between the Treasury Select Committee (TSC) and the Chair and new Chief Executive of the FCA, the two topics that dominated the session were PII premiums and FSCS levies.

    Referring directly to the letter-writing campaign by advisers to their MPs, (which demonstrates that the exercise yielded a positive outcome), Mel Stride, the TSC Chair, asked the FCA Chair and Chief Executive how quickly these two burdens could be resolved. Their responses quoted timescales for resolution in terms of years, whereas advisers ideally require solutions in a matter of weeks or months.

    Perhaps the FCA’s stated timescales reflect burdens of their own. 

    In the days leading up to Christmas, two independent investigations into its handling of the London Capital & Finance (LCF) and Connaught scandals concluded that the FCA could have done more to protect consumers, and identified "significant gaps and weaknesses" in its policies and practices.  

    Separately, two MPs have called for an investigation into the FCA’s handling of mis-selling complaints against advisers, regarding transfers out of the British Steel Pension Scheme. 

    To cap it all, other MPs are calling for a parliamentary debate to discuss what changes are required to ensure the FCA is fit for purpose and able to regulate effectively.

    Peter Gibson, Chair of the All Party Parliamentary Group on Personal Banking and Fairer Financial Services, said the LCF and Connaught reports provided “irrefutable evidence” that the FCA is failing to regulate effectively, and that an inquiry is needed;

    "It is of systemic importance, particularly post-Brexit, that the UK can have confidence in those responsible for regulating our strategically important financial sector.” Peter Gibson, Chair of the All-Party Parliamentary Group on Personal Banking and Fairer Financial Services."

    As our workshop discovered, the increasing costs associated with regulation – in particular, PII premiums and FSCS levies - are placing significant burdens on advisers. These increased costs, however, reflect a broken marketplace and an unfair system of funding, respectively.

    The letter writing campaign of last year proved that MPs represent the most effective conduit for advisers to set out their misgivings about the current state of regulation, and its unintended consequences on access to advice for consumers.

    Should an inquiry into the ‘fitness for purpose’ of the FCA take place this year, it could prove to be the most effective way of removing pervasive burdens from the shoulders of advisers. 

    Fixing a broken marketplace

    As our workshop discovered, the increasing costs associated with regulation – in particular, PII premiums and FSCS levies - are placing significant burdens on advisers. These increased costs, however, reflect a broken marketplace and an unfair system of funding, respectively.

    The letter writing campaign of last year proved that MPs represent the most effective conduit for advisers to set out their misgivings about the current state of regulation, and its unintended consequences on access to advice for consumers.

    Should an inquiry into the ‘fitness for purpose’ of the FCA take place this year, it could prove to be the most effective way of removing pervasive burdens from the shoulders of advisers. 

    For more information about this topic, please contact your usual Barnett Waddingham consultant. Or you can get in touch with me below.

     

    Stay up to date

    Get the latest independent commentary and exclusive insights from a range of experts at the forefront of pensions, investment, insurance and risk – tailored to your preference.

    Subscribe today