As the past few years have seen the costs associated with operating an IFA increase dramatically, industry experts believe that possible professional indemnity insurance premiums will only exacerbate the situation.
Possible business liability insurance premiums are not the only source of increased costs for IFAs, experts say. Levies from the Financial Ombudsman Service and the Financial Services Compensation Scheme have taken their toll, as well as RDR-related costs and even Money Advice Service charges have all taken the wind out of advisers’ sails.
Alan Lakey, a partner with Highclere Financial Services , remarked that operation costs for IFAs have rocketed since 1988, where he was just charged £150. Mr Lakey’s invoice for the 2009-2010 year, however, was just below £6,000, and professional liability insurance premium charges were part of this new sum.
Martin Bamford, managing director for Informed Choice, stated that increasing costs related to regulatory matters have been the biggest culprit, though administrative costs have been a contributing factor as well. One of these regulatory costs is the Money Advice Service, which receives its funding from a levy of £43.7 million collected from regulated firms.
Mr Bamford remarked that his firm’s MAS levy, which is only 0.1 per cent of Informed Choice’s turnover, feels like an expenditure that is simply unnecessary. The managing director said that he would rather be spending those funds on marketing efforts where he could be assured a return of anywhere between a factor of 20 to 30.
Mr Lakey said that the MAS levy has the effect of funding education for consumers through the clients of IFAs. He added that it’s unfair for an IFA’s clients to subsidise the MAS, especially since there are five distinct avenues for the agency to call upon.