Advisers have called on the FCA to deliver better value and more proportionate regulation after research revealed advice firms are spending up to 19 per cent of their income on regulatory costs.
Research by Apfa published last week, based on in-depth surveys with 74 advice firms, found advisers spent £460m in regulatory costs in 2013 – an average 12 per cent of their income.
The trade body says this means the average client is paying £170 a year towards the cost of regulation.
The figures show firms spent an average 9 per cent of income on indirect regulatory costs such as external compliance support and professional indemnity insurance.
Firms spent a further 3 per cent of income on direct costs, which relates to fees paid to the FCA, Financial Ombudsman Service, Financial Services Compensation Scheme and the Money Advice Service.
The research found smaller firms are paying a much higher proportion of their income in regulatory costs. Firms with annual income of between £100,000 and £250,000 spent 19 per cent of it on regulation, while firms with income of between £500,000 and £1m spent 8 per cent.
Apfa says this reflects the fact that smaller firms have to rely on external compliance support rather than having their own compliance staff.
Some firms said it was difficult to calculate the cost of regulation because of the knock-on effect of spending less time with clients and the resulting loss of revenue.
The trade body has sent its findings to the FCA and is asking the regulator to ease the burden on advisers.
Apfa director general Chris Hannant says: “This research has uncovered the scale of the indirect costs borne by advisers in their efforts to comply with the current volume of regulation.
“Smaller firms in particular tell us much of these costs comes from hiring external compliance support, or using internal resources on regulatory matters.
“There are a number of steps the FCA needs to seriously consider. It should find a way of streamlining the data it asks advisers to provide, and consolidating the sheer amount of information advisers have to get through in order to be compliant, via the handbook, seminars and elsewhere.”
He adds while good compliance is essential for the industry and consumers, the regulatory burden on advisers is “bloated, unnecessarily onerous and potentially damaging to the future health of firms”.
Pilot Financial Planning director Ian Thomas says: “If advisers are moving to become a profession then the FCA needs to lessen reporting requirements and put more trust in advisers and professional bodies to do the right thing.
“As a small business, the biggest issue is management time and resources – at least 20 per cent of my time is spent on regulatory matters.”
MFP Wealth Management chartered financial planner Justin King says: “The cost of regulation is high and that acts as a barrier to access to advice for consumers. But for me the even bigger issue is the cost of ineffective regulation. We continue to see misselling so the problem is that regulation is not working.
“We should be lobbying for effective, value-for-money regulation that ensures senior individuals are held to account when they do wrong.”
An FCA spokesman says: “We are always conscious of the cost of regulation, which is why we work to ensure our requirements are proportionate.”