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Apfa: Clients need to know what they pay towards regulation

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It will come as no surprise to readers of Money Marketing that an issue continually at the top of our members’ wish list for policy action is the cost the current regulatory system imposes on their businesses.

While there is clear consensus on the need for consumer protection, particularly given some of the recent misselling scandals, the number of advisers that say they are considering exiting the market owing to the high cost of doing business should give policymakers pause for thought.

In our engagements with the likes of ministers and the regulator we are often asked to quantify exactly what the costs of regulation are to advisers. It is straightforward to give an indication of direct fees but for many years there was no data on estimated indirect costs of regulation. By this I mean data such as the cost of compliance support (internal or external) or management and staff time spent on RMAR.

With this in mind, we decided to conduct an annual survey of members and this year sees the publication of our second. The results this time around back up last year’s, with small- to mid-sized firms estimating they spend approximately 12 per cent of their turnover on regulation. Nine per cent of this goes on indirect regulatory costs, with 3 per cent on fees and levies.

Taking into account the number of UK advisers and data on the average number of clients per adviser, this would lead us to estimate each client pays approximately £160 per year just to cover the costs of regulation.

Estimates of this type are just that but they provide a useful indication of magnitude. We believe this figure, when taken as a piece alongside our current campaigns to reform reporting requirements, alter the FSCS levy approach and introduce a liability longstop, can be a helpful tool. It gives us some indication of the amounts involved in paying for the regulatory system; much of which could do with reform.

We work closely with consumer groups to try to broaden access to professional financial help. We also believe it is incumbent upon advisers to be transparent and raise client awareness of the money they themselves pay to cover the costs of the complex and ever-changing regulatory regime.

This is why we have published a draft regulatory costs disclosure wording. It is by trying to build consensus not just within the industry but also with consumers and clients that we can convince policymakers of the need for regulatory reform.

The depth of frustration with the current system is clear, not just from conversations with advisers or the pieces and comments that appear in Money Marketing but also from the feedback section of our survey.

Several respondents said they would be exiting the industry in part because it simply costs too much to try to keep up with difficult-to-predict regulatory fees and changes. Others said they would never encourage a family member or friend to become a financial adviser.

Taken individually, the personal stories are moving. Taken together, they paint a picture of an industry trying to cope with an unwieldy regulatory system.

Caroline Escott is senior policy adviser at Apfa

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Yes regulatory fees are somewhat out of hand. But does APFA really think that clients will give a toss. Sure they may be a passing interest, but the total fee (or the bill) is what they look at. If you go for a meal and there is a service charge of 10% it may be of interest but what counts for the customer is the total he /she has to shell out.

    It might be a bit of a stretch to imagine that without the regulatory costs the bill would be that much cheaper. So is this all just a lot of hot air? Think of it from the customer’s point of view.

  2. I always explain to my clients that my charges reflect the cost of being in business and that the regulators fees – FCA/FOS/FSCS/MAS – take up around 20% of all outgoings.

    In short, my hourly fee would reduce by £35 if my time machine returned to 1987.

    I also ask them whether they believe that they get value for money from regulation. Thus far not a single one has said yes.

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