Fees bonanza as FSB pushes through inflation plus hike

15 June 2010 Gareth Stokes

The Financial Services Board (FSB) is a self-funding non-profit organisation that gets no assistance from Treasury. Instead it turns to the very companies and individuals it regulates to meet its funding needs. In terms of Section 16 (1) (b) of the Financial Services Board Act, the Financial Services Board (FSB) is entitled to charge and collect an annual levy from all licensed Financial Services Providers (FSPs) to cover its operational expenses.

Last year the FSB incurred the wrath of many independent intermediaries when an administrative error resulted in a blanket letter of demand being sent regardless of whether intermediaries’ levies were outstanding or not. But 2010 is going to be different. On Friday 28 May 2010, Gerry Anderson, Deputy Registrar: Financial Services Providers at the FSB issued a lengthy letter explaining the need for levy payments from all regulated entities and giving notice of an inflation plus increase in the base FAIA levy.

Understanding FAIS Levies

The FAIS department exists on levies collected from FAIS-authorised FSPs. “In accordance with long-established FSB policy, cross-subsidisation of expenditure by the different divisions within the FSB does not take place,” writes Anderson. “In other words, pension funds levies are utilised for the regulation and supervision of pension funds, likewise levies raised from insurers, collective investment schemes or financial markets are utilised for the costs incurred in the ongoing regulation and supervision of these sub-sectors.”

The FAIS levies are charged annually, at the end of September. Anderson notes: “The 2010 levy invoices will be mailed by 30 September 2010 and will be payable by no later than 31 October 2010.” Each and every FSP recorded at the Registrar’s office as at 31 August 2010 is legally obliged to pay the levy. And FSPs have to pay the annual levy if they wish to retain their licence, whether they are trading or not. Anderson requested that all FSPs check and update their records before 31 August 2010. To do so you must:

· Update your representative register on the central register.

· Inform the FSB in writing if you have discontinued your business, merged with another company, work for somebody else and stopped doing business and would like to cancel your license.

· Where applicable, ensure that you have submitted the correct total value of investments under management, should you be an investment manager or LISP (Category II or III FSP).

And the bad news is

It seems the FAIS fees and levies are no longer sufficient to cover the FSB’s operating costs. “Since the coming into operation of the FAIS Act on 30 September 2004, the base levy constituent of the total levy per FSP has deliberately been maintained at below cost in an endeavour to assist smaller FSPs,” maintains Anderson. They have decided to adjust the base in order to reflect the actual minimum costs incurred by the FSB in its supervision of the FAIS Legislative framework. The base levy component of the FSB FAIS Levy will therefore increase by 25% in 2010!

The 2010 FSB FAIS Levy for category I and IV FSPs is calculated as follows: A basic levy of R2 550.00, plus R400.00 for each key individual, plus R400.00 for each representative, to a maximum of R1 110 000. For Category I FSPs (rendering financial services only in connection with financial products belonging to long-term insurance Category A) the amount for each representative and key individual reduces to R200. The 2010 FSB FAIS Levy for Category II, II A and III FSPs is set as follows: Basic levy of R5 138.00, plus R400.00 for each key individual, plus R400.00 for each representative, plus 0.0000139546 of total value of investments managed, to a maximum of R1 017 000.

FSPs must also pay a FAIS OMBUD Levy. In 2010 the basic levy of R581.00, plus R218.00 for each Key Individual, plus R218.00 for each representative, with a maximum of R158 270.00 applies. The FSB has been deregistered for VAT purposes and VAT is thus not paid with regard to these levies! “Section 22 of the FAIS Act determines that the Office of the FAIS Ombud must be funded by the FSB. The FAIS Ombud levy is ring-fenced for control purposes,” notes Anderson. The FSB sends a separate invoice for the FAIS Levy and FAIS Ombud Levy.

Not everyone is happy!

The increase spells be bad news for smaller financial intermediaries whose levy will increase by close to the full amount. “We understand there is a cost to doing business, but we look for reasonableness and fairness in the application of levies and also seek ways in which to limit the increasing costs of compliance,” says Ian Middleton, managing director at Masthead. The broker representative body has already addressed certain concerns to the FSB.

The first is with the level of the increase. “The basic levy is going up multiples higher than inflation,” observes Middleton. “The smaller FSP will feel a more drastic and negative impact because the smaller FSP does not have the ability to spread the basic cost in the same way that a large FSP does.” He also raised concerns over the long-term viability of a base levy spread over a reducing number of FSP licences: “The number of licensed FSPs has reduced over the last year, thereby reducing the base from which to recoup. In the short term there will be a further exodus of independent FSPs, further reducing the base.” In other words – above-inflation levy increases could become the norm. “Smaller FSPs will have to consider ways to manage or reduce these fees,” says Middleton. Do you really need more than one FSP? Do your need all of your staff (especially admin staff) registered as advisers/reps? Etc.

Anderson’s parting thoughts offer precious little consolation to smaller FSPs. He observes that the levy amount paid by you to the FSB is a tax deductible expense. He also promises that the FSB will endeavour to keep their expenses down to a minimum and keep the base levy amount as low as possible (we assume he means in future considering this year’s 25% hike). The FSB’s accounts are open to public scrutiny and published in the group’s Annual Report.

Editor’s thoughts: The FSB has come under fire for their account administration in recent years. This year it seems they’re intent on smoothing over the invoicing hiccups of the past. Have you received the 28 May 2010 correspondence from the FSB? And are you happy with the 25% increase in the base levy? Add your comment below, or send it to


Added by Rob, 13 Feb 2012
I can sympathise with the small companies. these fees are not small for them, as for the medium sized brokerages, the compliance is just becoming too onerous for single person brokerages and small brokerages. Having a compliance officer, key individuals, procedures, reports, exams, documentation and procedures on distaster recovery, people under supervision, supervision procedures, DPS, for key indviduals, representatives.. and the list goes on and so many exceptions..and dates to remember..yes companies that manage money and hold money by all means check them , check them and check them again..but stop wasting resources on small business, that do not hold money . yes they need to make sure they do not lie to clients and keep call recordings, and dont give bad advice but the rest is becoming a complete wast of time and a full time job .. i rather pay back any client his full premium if he complains and i cant 100% proof that he knew what he purchased or if there is any doubt he was mislead and even keep money aside for that in a trust acccount and send proof of this account to the FSB.. but not all these useless procedures and continuous fees. With all the procedures you need full time key individuals and compliance officers .and thses job still needs to be managed and supervised and if they resings you have the next issue? Why does the FSB care whether or not a small broker is solvent or keeps records that he is solvent ? That is the job of the companies act, let them deal with that if they feel employess or suppliers are put at risk..There are enough provisions in that act already. Keep it simple!! Trevor Manual said we need to make small business easier to start and keep alive, this FSB act / complicance with the act is getting out of hand for small to medium sized business.and I don't even want to know how a sole proprieter feel about it.
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Added by Lucille, 17 Jun 2010
Soos met alles is elkeen wat in 'n magtige posisie sit, besig om alles in die afgrond in te bestuur tot nadeel van elke eerlike ordentlike mens wat slegs 'n lewe wil maak sonder om ander te besteel en te benadeel. Dit wil voorkom asof die persone aan die stuur dink dat daar 'n bodemlose put vol geld is waaruit hulle kan delf en haal waarmee hulle hulself kan verryk. Ek het goed reggekom sonder die FSB voor hulle aan die roer van sake gestaan het, geen klient het ooit verloor nie, nie die versekeringsmaatskappy is benadeel nie en ek kon brood eet? Wat maak die FSB eintlik vir my of vir my klient? Hul bydrae wat my betref is negatief, ek het hulle nie nodig om my aan my voor te skryf hoe ek 'n klient moet behandel nie, die mark sorg vir hom self, hierdie is net weer 'n wit olifant wat geld opslurp en niks is regtig voordelig vir my, die klient, die versekeringmaatskappy of die samelewing in geheel nie. Wetgewing kan nie integriteit en eerlikheid in enige bedryf, politiek ingesluit, verseker nie. Dit is deel van jou opvoeding en kultuur.
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Added by Andreas, 16 Jun 2010
I believe that FSP's are being milked in order to pay for the incompetents that are being "employed" by the FSB! The few competents who were there in years gone by have left because they were tired of carrying the burden of the "know-nots" 'Wont-works," Can't-works" and "buck-passers." Add to these those who pass the time of day there devising new edicts that will make life more difficult for FSP's. Having done that, they fell that they have justified there useless existence. Wake up Gerry! Sweep out your offices and pay less rental and salaries. Let them ALL do some proper work and provide a useful service. Then when your FSB starts making a meaningful contribution to this industry you will find that you need much less money for this service.
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Added by Chris, 15 Jun 2010
I think all government departments and parastatals are jumping on the bandwagon of excessive increases. Never once do we hear of what cost reduction measures they are taking to keep within budget or below inflation. Their exhorbitant packages are really not commensurate with the work output delivered and sooner or later it will have a major impact on the fastest growing employers the SMME's.
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Added by Cyril Nel, 15 Jun 2010
I find this increase horrendous. The smaller FSP is just nailed each year. How can they justify a 25% increase when we are all battling with the recession. So much for creating employment opportunities here in South Africa. No wonder we have such poverty, crime and huge unemployment. The government will milk anyone trying to make a honest living, no matter how much unemployment it creates.
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Added by KMS, 15 Jun 2010
The FSB in its function is a protector more for the client than the broker. Thus the client should also be made to contribute to this fund. Just as a policy fee is added ,an FSB levy should be added to the premium.
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Added by Skaapstad, 15 Jun 2010
It is very easy........Drive between Rigel Road and Lynwood look to your left The levies has built such an awesome building and we luuuuv paying for it.....
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Added by Garrick, 15 Jun 2010
These fees are simply a microcosm of the greater structural deficiencies in our economy. You have a very small (legally) productive, tax & fee paying sector supporting a massive group of unemployed, unemployable and often unproductive people. The burden on the productive will eventually squeeze the life out of the formal sector. Why ANYONE would even contemplate coming into this business in the modern era is a mystery to me. It's just become a Kafkaesque paperfest punctuated by the odd bit of business in between endless reporting ( and payments!) to the regulators.
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Added by Ayanda K, 15 Jun 2010
There is nothing in the law to prevent the FSB from escalating its fees by 25% every year for the rest of time if it so wishes. Without political intervention from the top (more and more likely in due course), they will just keep hiring people and renting office space, building empires on the backs of policyowners on to whom all costs are ultimately passed. Whatever consumers thought they might have saved through FAIS and its oddly named "ombud", is being voraciously consumed by this parasitic monster as it goes on growing like Topsy. The more they publish edicts (euphemistically called "regulation") the more edicts are found to be necesary to make the earlier edicts work. Economist Ludwig von Mises predicted this over 65 years ago. And who will teach the socialists that there is no such thing as a free lunch. No benefits come without someone paying for them. The "benefits" of the FSB with its ever widening array of laws and powers are more and more uncertain and unattainable. Sensing this they, like their UK counterparts, now grab at the straw of "treating the customer fairly". In time the entire edifice will inevitably sink without trace. Alas, not in our lifetimes and not before billions have been shamelessly wasted.
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Added by ANN , 15 Jun 2010
Yes, I also have received the letter and new levy structure. It is absolutely outrageous and I believe not in the spirit at all to demand a 25% increase in this environment. I am convinced the FSB is either mismanaging the funds collected and if they disagree let them make available their financials ot all interested parties via email annually. They are aptly able to send their levies via a buld email ... so shouln't be too difficult to do the same with their financials
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Added by Ron, 15 Jun 2010
FSB levies, Masthead now charging R9600 per year ( new cost), PI cover, Atwork, Spotlight, as and when commissions, compulsory exams @ R1000 a pop and the list goes on ad nauseum. Do these people think that there is a bottomless pit of money that we as brokers can tap into to keep funding all the new found hairbrained schemes that are thrust upon us. It's going to end, believe me, and the industry is going to be considerably worse off at the end of the day.
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