In response to the paper, 05/2 Regulatory fees and levies 2005/06, David Severn, director general of AIFA, said: "The FSA seems determined to strangle the life out of the IFA sector. How can businesses be expected to absorb increases in regulatory costs of between 15% and 30%, compared with last year and survive? At the end of the day it will be consumers who suffer if sources of genuine independent financial advice become extinct because of the burden of regulatory costs.
"Our greatest concern and anger is over the massive rise in the compensation levy. The FSA's mechanism for raising this levy is grossly unfair and is tantamount to imposing swingeing fines on honest firms. The FSA simply must carry out an urgent and fundamental review of the compensation funding arrangements," concludes Severn. Major points highlighted in the response include:
- Regulatory costs for IFA firms have spiraled under the FSA. It is not just direct costs, but the increased cost of professional indemnity insurance and the over-arching cost of compliance in general.
- The combined cost to firms providing investment, mortgage and general insurance advice represents a substantial increase in regulatory fees.
- Financial advice is becoming more holistic. Most IFAs offer advice across the board and if costs to conduct a particular category of business make it unprofitable, it is the consumer that will lose out, as the firm will exit the market.
- Claims to the Compensation Scheme have escalated and the withdrawal of provider subsidies has compounded the problem. If the pressure of spiraling costs results in more IFAs going out of business, then the remaining firms will have to meet an ever increasing share of compensation costs. This in turn will create an ever-increasing number of failing firms.
