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Regulatory burden costs advisers 12% of income

Advisers are paying £460m a year in regulatory costs, equivalent to 12 per cent of the average firm’s income.

Research by Apfa, based on in-depth surveys with 74 advice firms, shows advisers spent £460m in regulatory costs in 2013, meaning the average client is paying £170 each year towards the cost of regulation.

The majority of costs relate to indirect costs, such as external compliance support and internal resources.

The average firm spent 9 per cent of income on indirect regulatory costs last year and 3 per cent on direct costs, which relates to fees paid to the FCA, Financial Ombudsman Service, Financial Services Compensation Scheme and Money Advice Service.

The research found that smaller firms are paying a much higher proportion of their income in regulatory costs.

Firms with annual income of less than £250,000 spent 19 per cent of their income on regulation, while firms with income of between £500,000 and £1m spent 8 per cent of it on regulation.

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 come 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 give them more time to provide it. It needs to simplify and consolidate the sheer amount of information advisers have to get through in order to be compliant, via the handbook, seminars and elsewhere.”

Hannant says Apfa has written to the FCA with its findings.

He adds: “Good compliance is essential for the industry and consumers, but the overwhelming feeling at present is that the regulatory burden on advisers is bloated, unnecessarily onerous and potentially damaging to the future health of firms.”

In January Treasury select committee chair Andrew Tyrie called on advisers to provide “robust” figures on the cost of regulation in order to better hold the FCA to account. 

In May, research commissioned by Money Marketing revealed that almost two-thirds of advisers estimate their regulatory costs to be over 10 per cent of their turnover.

Earlier this week, Money Marketing reported the FCA had scrapped a full review of the way it calculates advisers’ fees. 

Apfa_regulatory_costs

Source: Apfa

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Please don’t bother sending that info to the FCA we all know were it will end up

    Send it to every MP and TSC member, and make it public !!!! so every single client knows exactly how much they pay for the red tape and crap associated with the FCA, and to house them at Canary Wharf !!! and soon to be Stratford.

  2. Soren Lorenson 5th June 2014 at 2:34 pm

    Just the existence of compliance consultants should tell the Government all it needs to know about financial services regulation. If people who are smart enough to set up and run businesses cannot understand and comply with regulation without employing external consultants it is certain that regulation is too expensive and complex.

  3. I really can’t conceive how this figure was arrived at. Are respondents chucking in the costs of seminars, subscriptions, memberships etc? Even if they did I would guess the figure is more like 7%.

    Of course if they engage compliance consultants, networks or service companies, then I guess 12% might be modest. But that too is a false picture as these add ons are by no means compulsory. A bit of DIY can evidently save thousands.

  4. 3% of direct costs in fees – fine.

    9% in indirect costs – This is highly variable and depends massively on the type of compliance appraoch you take. A firm that pays for an external compliance firm to check case files and design and impliment processess will invariably have a significnatly higher ‘cost of regulation’ compared to firms that do this ‘in-house’ or individallly – or not al all!

  5. Julian Stevens 5th June 2014 at 7:13 pm

    Will APFA publish at least the gist of the FCA’s response to its findings? Assuming of course that the FCA even deigns to bother.

    And what’s the point anyway? The FCA has already announced that it’s flushed down the toilet its plans for reviewing the way in which advisers’ levies are calculated. Does APFA think that reporting its findings has the remotest prospect of prompting the FCA to think again?

    Yap, yap, yap. Go away.

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