2nd November 2011

Hi Ho Silver lining

Will the FSA now be working on a commission basis? 

Well that would be a turn-up for the books. The more fee based work IFAs do in the brave new world, the more you would pay in fees to the regulator. Is this equitable or is it just a “Success tax”?

The FSA’s CP department must be headed by a relative of Claudio Ranieri, (known as the “Tinkerman” when he was the Manager at Chelsea FC). How many more changes are to be proposed/ enforced? The FSA is proposing in the just issued CP11/21 to change the basis on which it calculates adviser firms’ regulatory fees from a formula based upon the number of approved persons a firm has to a calculation based upon a firms income.

They say “we are making these changes partly in response to an equality impact assessment (EIA) we have carried out of our fees policy, and partly to resolve longstanding administrative difficulties in validating the data for fee-blocks A.12, A.13 and A.14”.

That sounds a bit ominous. With the vast reporting of data flooding into Canary Wharf each day can it be that saturation point has been reached and at long last questions are being asked as to why we need so much data and what are we actually doing with it?

Do “administrative difficulties in validating the data for fee-blocks A.12, A.13” mean they do not trust it or that they no longer understand why it has been asked for?

They state “we instead propose an income measure which will simplify the administration while at the same time removing any theoretical risk of adversely having an impact on good practice in equalities”.

What is happening with regulatory fees is that they are driven by a “halo of parliamentary given entitlement. The FSA has no competition as they are not a commercial entity, they can charge what they like, can overspend what they like then increase what they charge to cover it by having statute on their side to do so.

This reminds me a little of Southern Spain where I spend some of my time. The economy is shot; unemployment is at over 50% on the Costa del Sol and many businesses struggle. But, to cover the loss of customers, they increase the price for those still around and able to pay while they still can.

This latest CP suggestion is simply unfair on efficient firms in particular, it sends the wrong message and really is a tax on success.

And that is a big problem with the FSA, they are seen in recessionary times as going around bayoneting the wounded, in this case with ever higher fees and ever complex diktats, this latest CP is a great example of wrapping an increase in revenue in the “Kings new clothes” and expect that nobody will see through the charade.

Phrases such as  “working with an obsolete tariff-base is inefficient and generates more work for us and firms” means we will not have enough money to go around and will need to make sure we get it from somewhere.

“We believe our track record demonstrates that we are fair and pragmatic” means in fact the opposite- a better example of Paradox will not be found anywhere other than in MS Windows where to shut your PC down you click “Start”

And as for “we wish our definitions to be straightforward and unambiguous, without undue complexity, and would welcome views from the industry,” the Abilene Paradox springs to mind where people can make decisions based not on what they actually want to do, but on what they think that other people want to do, with the result that everybody decides to do something that nobody really wants to do, but only what they thought that everybody else wanted to do.

The RDR in a nutshell.

Put simply, this CP 11/21 is a complicated way of saying we will be paying more very soon. More in time, money, job losses. But if fees were calculated as a percentage of gross profit…………………..?

There is however at least one positive outcome from these proposals, as Tom Scott said: “This will be great for transparency. If the FSA charges, say 2% of turnover, we can put this clearly on our client agreement and client invoices as a tax so that it is clear what the FSA costs and whether in the clients mind it provides value”.

As the Jeff Beck song goes

“Lies are gonna get you some day

Just wait and see

And it's hi ho silver lining”.

The FSA awaits your feedback, it may not listen but it is vital that you should give it anyway.

FSA/FCA, Panacea Comment