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.