While much has been written and said about regulation, most people in the mortgage industry maintain that it has been a positive step for the housing market, giving invaluable consumer confidence and clearing out many of the cowboys.
Nevertheless, there is still much that people gripe about, from the mass expanse of paperwork required to the endless reams of compliance.
Yet, one particular issue that is not always mentioned, but certainly ranks highly in all advisers’ business costs, is that of the fees the Financial Services Authority (FSA) imposes on every firm it regulates, which are by no means small change for any firm.
Now, however, the FSA has confirmed that adviser fees are going to increase. This is due to its plans to step up its supervisory work of small firms; the cost of which will be met by the increased fees. The FSA maintains this is likely to be a short-term rise, with fees potentially reducing as the rogue advisers are weeded out and standards increase.
Nevertheless, the news has gone down like a lead balloon with advisers, who already feel the FSA’s fees are too much. So, is the financial burden the FSA is asking firms to bear becoming too much, particularly at such an uncertain and difficult time in the market?
Leaning on small firms?
Alan Lakey, partner at IFA firm Highclere Financial, points out that after his lease, the FSA’s fees are his biggest single outgoing and states that since he saw IFA regulation introduced in 1988, fees have increased by 20 times. He adds: “The FSA might, in a less than subtle way, be trying to get people to join networks.
It prefers networks and this runs hand in hand with the Retail Distribution Review and capital adequacy. Right now capital adequacy requirements are £10,000, but there’s talk of raising it for professional advisers, with figures bandied around by commentators of up to £50,000. This has to be liquid cash, not assets, and many brokers faced with this would run to a network.
“The FSA doesn’t support the concept of small adviser firms; it much prefers larger, well capitalised firms, as it makes its life easier. It would much rather call on a network of a thousand advisers, than a thousand advisers.”
Lakey believes the annual fees he, and all advisers, face are extremely high and cannot see a point where they will not continue to rise above inflation.
Offering much in return
However, Adam Richards-Gray, spokesperson for the FSA, maintains the FSA does offer much to small firms in return for the fees it charges, such as its regional visits, roadshows, surgeries and industry training, among other initiatives. He adds: “We will be consulting on fee levels for 2008/09 early next year, and will take account of the views of our industry stakeholders, including small firms, in setting fee levels for the year to come.”
Yet, as Colin Snowdon, chief executive of Wave, cautions: “Now is not a good time for the FSA to be stepping up the financial burden on firms, as many businesses are going to be under a lot of pressure in the next 12 months.”
It is not just small firms that feel the pinch of the FSA’s fees. Thomas Reeh, chief executive of blackandwhite.co.uk, says his firm pays a six figure sum to the FSA every year and believes the fees that advisory businesses face are ‘exhorbitant’. He says that what firms receive for the fees does not extend beyond what was there before regulation was introduced.
Reeh explains: “I don’t believe that much was wrong with the mortgage industry pre-regulation and there are very few complaints to the Ombudsman that relate to mortgages. The fact is that intermediaries and lenders have worked so closely together that it means that by default our industry has been regulated because brokers are subject to lenders’ terms and compliance, and lenders’ funders also control quality.
“The fees the FSA charges are very steep. If the FSA ups that for small players it could be very damaging. If it prevents new people joining the industry that damages consumers’ choice. I feel the environment needs to be made more favourable to intermediaries. Costs have gone up and the cost to consumers has gone up. Is it value for money? I could debate that one.”
Certainly, FSA fees will continue to be a burden that anyone in the mortgage industry must be prepared to put up with. Whether they are ‘fair’ or otherwise is likely to remain a never-ending debate, but one can hope that the FSA keeps its eye on the ball when it considers the fees it charges. It is all well and good weeding out the rogue players, but it should not be at the expense of those already complying with the rules and struggling in a difficult market.
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