Ah, the FCA. The Financial Conduct Authority is supposed to be the shining beacon of fairness in financial services, right? Its Consumer Duty has been heralded as a triumph for transparency and value-for-money, putting a sharp focus on those pesky ad valorem fees charged by financial advisers. For years, clients have been burdened with ongoing charges calculated as a percentage of their assets—fees that, let’s be honest, often bear no resemblance to the actual cost of the service provided.
In a bid to clean up this act, the FCA has encouraged firms to pivot to fixed fees for services—fairer, more predictable, and a much better reflection of the work involved. Bravo, FCA. We applaud this progressive step. But then, as we wipe a tear of admiration from our eye, along comes the kicker: this very same regulator now proposes to ditch its own fixed-fee model for principal firms of Appointed Representatives (ARs) and Introducer Appointed Representatives (IARs) in favour of—wait for it—a variable, ad valorem fee structure.
Yes, you heard that right. The regulator that’s wagging its finger at the industry for profiting from questionable percentage-based fees has decided to give the model a whirl itself. Hypocrisy, thy name is FCA.
A Lucrative U-Turn
Until now, the FCA has charged a flat fee for ARs and IARs—£289 per AR and £87 per IAR. Nice and simple. But, according to a recent consultation paper, this fixed approach apparently doesn’t "reflect the costs it needs to recover." So, they’re proposing a shiny new variable fee model, where larger firms pay more based on—drumroll please—their sales revenues and, therefore, the assets under influence. Sound familiar?
This, of course, is to “make sure we recover the revenue we need,” says the FCA, with all the sincerity of a dodgy tradesman quoting you for ‘unexpected costs.’ They argue it will prevent over or under-recovery of cash from firms. And don’t worry, they assure us, the fees charged won’t be vastly different. Just, you know, different enough.
Learning from the Best (or Worst?)
Perhaps the FCA has been studying the industry it regulates a little too closely. After all, the ad valorem fee model has proven highly lucrative for financial advisers, so why shouldn’t the watchdog get a slice of the pie? If it works for the goose, why not the gander?
But isn’t this a bit rich? Under the Consumer Duty, financial advisers are being told to abandon percentage-based fees because they’re deemed a poor representation of value-for-money. Yet here’s the regulator, dipping into the very same cookie jar and calling it necessary reform. It’s a bit like a parent telling their child to eat their broccoli while stuffing their own face with chocolate cake.
The Real Cost of Change
The FCA argues that the shift to a variable model is about fairness and proportionality. But let’s be honest: this is really about increasing revenue. The flat fee approach may have been simple, but it clearly didn’t rake in enough cash to keep the FCA coffers happy. And who ends up footing the bill for these higher costs? That’s right—the firms they regulate. And those firms will likely pass the cost on to their clients. It’s a merry-go-round of financial burden, and the FCA just bought itself a VIP ticket.
Final Thoughts
The irony of this move is almost too much to bear. On one hand, the FCA demands that advisers overhaul their fee models to better serve clients and deliver value-for-money. On the other, it trots off in the opposite direction, adopting the very approach it’s been so critical of. It’s as if the FCA has seen how profitable ‘fees for no service’ can be and thought, “Why should they have all the fun?”
So, as the consultation period rolls on, let’s hope someone at the FCA takes a long, hard look in the mirror. Because if the goal is truly fairness, consistency, and value-for-money, then perhaps the regulator should consider leading by example—rather than taking a leaf out of the rulebook it’s supposed to be rewriting.
Your move, FCA.
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