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09 Jun 21
The Cost Of Regulation
In my career over the past 30 years, regulation has gone from “light touch” to “top heavy”.
Today, True Bearing employs several compliance and technical specialists to ensure everything is in order. “What’s wrong with that” you might say? The answer is in the cost of it all.
We are regulated by the Financial Conduct Authority (FCA). Each year they charge us their annual fees. This covers the cost of the Financial Ombudsman Service (FOS) who adjudicates on client/firm disputes, and the Financial Services Compensation Scheme (FSCS). The FSCS has the power to recompense clients who have been badly advised and the advising firm is no longer trading.
Every regulated IFA Firm is required to hold Professional Indemnity Insurance. Just like your car insurance, we pay this regardless of whether we make a claim or not. It pays out if we have misadvised, apart from any excess figure which we must meet.
The cost of all these staff and regulatory fees in 2020 came to £13 of every £100 in fees that we charge our clients. To my mind this is too high.
Without regulation we know unscrupulous people out there will cheat and scam investors. So, with all this cost has the cheating and scamming stopped? The answer seems to be not. Almost weekly we hear about another misadvising or misappropriating story.
Back in 2012 the rules for IFAs changed. Qualifications at a much higher level became a must. True Bearing as a Chartered Firm, is in the top 15% nationally when it comes to qualifications. Also, financial commission was banned for all investment and pension work. It was replaced by fees, that were explained and agreed in advance with any new client.
The FCA believed that a more professional advisory firm would help bridge the ADVICE GAP. The advice gap refers to all those people who need advice but don’t feel they can afford it. The opposite has occurred. The cost of regulation has meant that the ADVICE GAP has grown, not narrowed. With all its best intentions the FCAs major objectives are being missed.
As for now, True Bearing will continue to give GOOD ADVICE and GOOD SERVICE to its growing client bank. We will also as professionals try to persuade the FCA to up its game.