Retained fines from portfolio advisers and IFAs have kept the fee increases to more manageable levels in the current financial year. However, a wary eye will need to be kept on a potentially growing Brexit bill at the FCA and the cost of a one-off office move.
Portfolio managers, otherwise known as block A7, will see fees rise by 5.3% to £44.9m in 2017/18 from £42.6m in 2016/17. The fee block will see a rebate of 24.1% due to retained penalties from enforcement actions.
The increase for portfolio managers is partly due to an rise in client funds, which are used to calculate the fees, to £7.6trn from £6.3trn, and an increase in the number of firms in the block to 2,895 from 2,795.
The A.13 block, which covers “Advisory arrangers, dealers or brokers” and includes IFAs, will see fees rise 4.7% to £77.1m from £73.7m, with a rebate from retained penalties of 5.1%. This block saw an increase in income used to calculate fees rise 7% to £29.1bn from £27.2bn.
Most significantly for advisers, they will also see big falls in what they contribute to the Money Advice Service (MAS) and Pension Wise as the budgets for these services are pared back in advance of the creation of a single guidance body.
Advisers will see their contribution to the Money Advice Service fall 31.3% to £1.9m from £2.7m. Advisers have seen their contribution to Pension Wise drop from £2.7 to £2.1m as the service’s budget was cut overall.
Portfolio managers will see their contribution to MAS also fall 31.3% to £800,000 from £1.2m. Their contribution to Pension Wise has fallen to £4.1m from £5.4m.
Anti freeze
More broadly, the FCA has rejected calls from respondents to its fees consultation to consider a three-year freeze on fees and for it to disclose much more information about its spending.
That may unnerve some in the industry who have traditionally complained not just about general FCA spending but also the need to fund, among other things, FCA pension liabilities.
The FCA has confirmed its overall annual budget for 2017/2018 at £526.9m, an increase of £7.6m with £5.1m accounting for a planned rise for inflation set at 1% and £2.5m for additional activity carried out by the FCA due to Brexit – either in its own right or supporting the government and the Bank of England.
The document says: “Our EU withdrawal costs are to cover additional resource to support our EU planning and general counsel activity. The UK’s withdrawal from the EU will have important implications for us over the coming years and will be a key area of focus. We have dedicated resource to coordinate and manage this work and are liaising closely with the Treasury and the Bank of England as well as providing the government with technical support during the withdrawal process. As we gain more certainty over the process, we will review the need to recover such costs in future years.”
Last year’s surplus will also be retained in case of further Brexit costs but also for the FCA’s planned office move across East London from Canary Wharf to the International Quarter in Stratford near the Olympic Park.
The report acknowledges that some trade bodies which replied to the consultation are still demanding a much more detailed breakdown of costs and for a three-year budget freeze given the history of increasing costs and the sudden spikes in the past in the aftermath of the financial crisis.
However, although there may be minor concessions and a fall in fees last year, it does not look like costs are going to reduce substantially.
The FCA says: “We acknowledge that after the banking crisis there were substantial increases in our Ongoing Regulatory Activities to reflect the necessary step change in regulation that followed. More recently, increases in our ORA have been lower and in 2016/17 there was a decrease of 1.6%. Under the new policy, such a decrease would be reflected in minimum fees (and flat fees).”
It doesn’t look like there will any major shifts in thinking or falls in bills in the next few years at least.
