FEES 6 Annex 4 Guidance on the calculation of tariff bases

G

1This table belongs to FEES 6.5.8 G

Calculation of annual eligible income2 for firms in class D1 2who carry out discretionary fund management and are in FCA fee block A72

223

2-1.1

[FCA]

G

The tariff base for class3 D1 is calculated by taking gross income falling into class3 D1 and then deducting commission, fees and similar amounts rebated to customers or passed on to other firms (for example, where there is a commission chain). Items such as general business expenses (for example employees' salaries and overheads) should not be deducted. The calculation should be further adjusted so as to exclude income that is not attributable to business conducted with or for the benefit of eligible claimants, unless the firm chooses to include such income.2

33

1.1

[FCA]

G

Gross income for the activity of managing investments is the sum of the following:

2

(1)

the amount of the annual charge on all assets in portfolios which the firm manages on a discretionary basis received or receivable in the latest accounting period (this is calculated as a percentage of funds invested, typically 1% p.a.); plus

(2)

the front-end or exit charge levied on sales or redemptions of assets in portfolios which the firm manages on a discretionary basis (typically 4-5% of sales/redemptions) in that same accounting period; plus

(3)

the amount of performance management fees from the management of assets in portfolios which the firm manages on a discretionary basis received or receivable in that same accounting period; plus

(4)

any other income directly attributable to the management of assets in portfolios which the firm manages on a discretionary basis in that same accounting period, including commission and interest received.

1.2

[FCA]

G

Annual eligible income2 should exclude

222
2

income received or receivable from assets managed on a non-discretionary basis, being assets that the firm has a contractual duty to keep under continuous review but in respect of which prior specific consent of the client must be obtained for proposed transactions, as this activity is covered in class3 D2 (the investment intermediation class3).22

332

1.3

[FCA]

G

A firm should make appropriate arrangements to ensure that income is not double counted in relation to the activities it undertakes (for example, where it operates and manages a personal pension scheme or collective investment scheme).

Calculation of annual eligible income for firms in sub-class D1 and who carry out activities within FCA3 fee block A92

23

2.1

[FCA]

G

The calculation of income in respect of activities falling into class3 D1 and FCA fee block A9 should be based on the tariff base provisions for that fee block (in Part 3 of FEES 4 Annex 1A R).4 It should be adjusted so as to exclude income that is not attributable to business conducted with or for the benefit of eligible claimants, unless the firm chooses to include such income.2

234

22.2

[FCA]

G

Although the calculation should be based on the one for fee block A9, the calculation is not the same. FCA fee block A9 is based on gross income. Class3 D1 is based on net income retained.

3

2Calculation of annual eligible income for a firm in class3 B2 or class3 C2

33

23.1

[FCA]

G

The amount of annual eligible income should include the amount of any trail or renewable commission due to the firm. Trail commission is received as a small percentage of the value of a policy on an ongoing basis. Renewable commission is received from a very small percentage of the value of a policy from ongoing premiums often received once the initial commission period is over.

2Difficulties in calculating annual eligible income

24.1

[FCA]

G

The purpose of Note 2 in the section of notes at the end of FEES 6 Annex 3 R (Financial Services Compensation Scheme - classes) is to deal with the practical difficulties of allocating income correctly between different classes3 and in deciding whether income falls outside FEES 6 Annex 3 R altogether. Note 2 requires a firm to carry out the necessary apportionment on a reasonable and consistent basis.

33

24.2

[FCA]

G

The following provides some guidance as to how firms may approach the allocation of annual eligible income.

24.3

[FCA]

G

Where a firm cannot separate its income on the basis of activities, such as a fund manager which acts on a discretionary and non-discretionary basis for the same client and who only sends out a single invoice, the firm may apportion the income in another way. For instance, a firm may calculate that the business it undertook for a client was split 90% on a discretionary basis and 10% on a non-discretionary basis calculated by reference to funds under management. The firm may split the income accordingly.

24.4

[FCA]

G

A firm may allocate trail or renewable commission on the basis of the type of firm it receives it from. For instance, if it comes from a life provider the firm may consider it as life and pensions mediation income. If it comes from a fund manager the firm may treat it as investment mediation income.

24.5

[FCA]

G

If a firm receives annual eligible income from a platform based business it may report annual eligible income in line with the proportionate split of business that the firm otherwise undertakes. For instance, if a firm receives 70% of its other commission from life and pensions mediation business and 30% from investment mediation business, then it may divide what it receives in relation to the platform business on the same basis.

24.6

[FCA]

G

Unless a firm chooses to include all relevant annual income, annual eligible income excludes business that is not compensatable under the compensation scheme. This can create difficulties because, for example, a person may move between being and not being an eligible claimant over time. The purpose of Note 3 in the section of notes at the end of FEES 6 Annex 3 R is to deal with that difficulty by fixing a date for deciding this.

2Gross technical liabilities and mathematical reserves for non-directive friendly societies

25.1

[PRA]

G

The tariff base for a non-directive friendly society carrying out general insurance business is based in part on gross technical liabilities and the tariff base for a non-directive friendly society carrying out life insurance business is based in part on mathematical reserves. These concepts do not directly apply to non-directive friendly societies and so the tariff base calculation uses a corresponding concept.

25.2

[PRA]

G

The figures for gross technical liabilities and mathematical reserves of a non-directive friendly society for the purpose of calculating its tariff base in class3 B1 (General Insurance Provision) and C1 (Life and Pensions Provision) are based on a valuation. This valuation only has to be made every three years. FEES 6 does not require a non-directive friendly society to update that information every year. Instead the figures from a non-directive friendly society's valuation will be used on a rolling three year basis for the purposes of the levy calculations in FEES 6. The effect of this calculation is therefore to modify the normal basis on which information is supplied under FEES 6.5.13 R.

3