The ValidPath Fee Project 


ValidPath are planning to issue personalised illustrations to each Member Firm during the week commencing 7th March.  These are preparatory for the year end (31/03) after which final illustrations will be issued based upon the full twelve months of accounting data.

The illustrations provide a breakdown of cost components, as well as a comparison to the alternative of direct regulation, and will be accompanied by an explanatory booklet.


In 2013, the FCA changed the way it calculates its annual fees (which incorporate FCA Periodic Fee, and FOS and FSCS Levies).  Previously, the bulk of these regulatory overheads were derived from a fixed cost per CF30 Adviser - from 2013, all such fees became turnover-related.

The FCA gathers this data in its RMA-J form, once a year (covering the 12 months to 31/03).  On this basis, the turnover data for the year ending 31/03 is used to calculate the fee which will be levied in the following August.  You should be aware how the FCA gathers this data - here is the relevant extract from RMA-J:

Turnover Source (A) FCA
Annual Income
Relevant Income
Eligible Income
1.  Home Finance Mediation      
2. Non-Investment Insurance Mediation      
3. Life & Pensions Mediation      
4. Investment Mediation      


When the FCA invoice plops, fatly, through the letterbox later in the year, it is apparent that each of the turnover sources is subject to its own percentage charge.  Those charges vary quite widely, dependent upon the nature of the business, so we have built them into our own internal modelling.


How ValidPath are responding

Firstly, it's worth noting an immediate effect of the FCA's new turnover-related charges:  from the 2013/14 to the 2014/15 charge-years, our FCA overhead rose by +55%.  We notified our Members of this change, but also confirmed that it was our intention to absorb this hike in overheads, as we felt it was inhumane to simply pass it on.  Thankfully, ValidPath have over the last decade adopted a highly cautious policy in relation to our reserves, and this enabled us to protect our Members, as we have sought consistently to do over the years.  It is also worth noting that this does not constitute a sustainable long-term response to what the FCA has done.

Over the last six months, ValidPath have been running a review project, assessing the impact of the FCA's new charging-basis, and considering how it is likely to impact upon our Members.  What is clear is that some change will be necessary, and what is also clear is that our higher-turnover Members are going to be less happy with the impact.  Our aim has been to avoid a knee-jerk response to the hike in regulatory overheads, but equally well we do need to account for this in a way which is fair to all our Members.  We can opt for a 'one-size-fits-all' solution, but this will necessarily mean that lower-turnover firms will end up paying more than they need to.  What we can confirm is that when we factor in turnover-related FCA charges and PII costs right across ValidPath, it is clear that the average percentage deductive needs to be 14%.  For some Member Firms, that's going to come as a bit of a shock to the system!

Preliminary Notification to Members

This web-page has been put together to provide you with sufficient background which we hope will help when we send out a personalised consultation document to each Member Firm, within the next few weeks.  Our aim is to furnish the basis for an informed discussion which takes us from where we are, to where we need to be, in a manner that causes the least pain possible.  We have, accordingly, created a new financial model, which allows us to bespoke ValidPath's Network Deductive for each firm, based upon the following data:
  • Correct, apportioned turnover data for the last twelve months, to which we apply the actual FCA charge rates
  • Using that same turnover data, we apply the actual premium rate for PII (1.65% of turnover), which means we are moving from a flat-rate (which we have held to, historically, since 2003) to a turnover basis, consistent with the FCA
  • The actual cost of Clarity licences (which will vary from Firm to Firm)
  • The actual cost of DeFaqto licences (which will vary from Firm to Firm)
  • An equivalent cost for ATEB and CashCalc (although the former is under review, and the latter is very modest)
  • An allowance for ValidPath's infrastructure and overheads
  • A profit-margin of 3% to allow ValidPath to maintain reserves, and function effectively as the 'Bank of ValidPath', maintaining a stable financial operating environment for all our Members
Where it is apparent that costs are likely to rise for individual Firms, we will do our best to manage this as carefully and humanely as possible.


A word about ValidPath's financial policy

We do not, and never have, proceeded on what may be regarded as a 'purely commercial' basis.  We commence our considerations with the value that we seek to add, with the infrastructure, resources and systems which are necessary, and then decide how this can be reasonably costed, and charged for.  Our aim is to be profitable, but that is not an objective held for its own sake, but rather because of how it allows us to support our Members.  It is this policy which has allowed us to continue to operate successfully over a prolonged period during which most of our competitors have gone the way of all flesh.

You will therefore understand that we are keen to preserve this kind of ethos, and not make changes which will undermine our primary objective of maintaining a stable operating environment for our Members.  

Now, that may be fine as an expression of the big picture.  How does this work its way out in terms of detail?
  1. Other than in respect of ValidPath's own clients, we do not receive any other revenues, other than our agreed Network Deductive (which contrasts with nearly all of our competitors, pre-RDR);
  2. We build revenues arising in respect of our own clients into the overall model, using them to defray operating expenses, and therefore reduce your overheads;
  3. From 2003 to 2008, we sustained an ongoing project of fee-reduction, in order to ensure that our Members paid no more for our services than was required;
  4. We have never once passed on to our Members the cost of those egregious 'interim' levies, demanded by FSCS and FOS;
  5. We work hard to ensure that the footprint of our infrastructure is no larger, nor more expensive than it needs to be, in order to deliver our service to you;
  6. We relentlessly recyle year-end profits back into reserves within ValidPath, as we believe that this is our best chance for a sustainable business model, in a sector where the Big Bureaucrats predate, apparently with little restraint;
  7. Where we recharge licence fees to Member Firms (Clarity, DeFaqto), not only do we not make a margin on the transaction, generally, we are actively subsidising the overheads, in order to keep your costs to a minimum.

A final word on the FCA's computations

ValidPath, like any regulated firm, is wholly reliant upon the FCA's accuracy and reporting systems.  We have to proceed on an assumption which turns out to be like a kind of faith - that when we enter our financial data into the FCA's RMA-J, then something happens to that data, in order to calculate the fees for which we are billed.  When, as is the case with our own outgoings, it is actually impossible to determine the relationship between what was reported, and what was charged, we have queried the matter with the FCA, assuming that someone there would be able to explain how the calculation works.

In a rational world, this would not be an unreasonable expectation.  In practice, locating someone within the FCA who has their finger on that particular pulse has proven to be a challenge for which there are insufficient hours in the day.  We have been supplied with reams of self-referencing hypertext, which we suspect has been designed specifically to anaesthetise individuals intent on such enquiries, and will raise the matter with senior FCA Officials when we attend our next Roundtable at Canary Wharf on the 22nd March.

Kevin Moss, 16/02/2016