Treasury select committee chair Andrew Tyrie gets plenty of complaints from advisers and the wider financial services sector about the costs of regulation.
And unlike many politicians is he canny enough to understand these costs don’t just disappear into a black hole. They are passed on to clients in the fees they pay for products and advice.
The problem Tyrie has had is attempting to quantify all the direct and indirect costs of regulation and then to monitor the burden and benchmark it both over time and against other professions.
In an interview with Money Marketing in January, Tyrie called on advisers to provide evidence of the total cost of regulation in order to better hold the FCA to account.
Tyrie told our reporter he wanted to see a regular “robust” figure for the total cost of dealing directly and indirectly with all regulatory demands, not just FCA fees.
This would need to include the cost of compliance services associated with dealing with the FCA, alongside fees relating to the Financial Ombudsman Service, Money Advice Service and Financial Services Compensation Scheme levies.
We decided to take up the challenge and worked with Aviva to piggyback on its regular comprehensive adviser research by asking a new question about the total costs of regulation to adviser businesses.
We’re bombarded with research of the adviser sector, some with very low sample sizes and filled with leading questions. But Aviva’s research of 1,500 advisers is among the best I’ve seen.
We asked advisers what percentage of their turnover was spent on all regulatory costs and the figures we got back were, in Tyrie’s words, “concerning”.
Over two thirds of advisers say such costs make up 10 per cent or more of their turnover, with 15 per cent of advisers spending over 20 per cent or more of turnover on regulation.
Tyrie says describes the research as “an important piece of work”. “With such a high proportion of firms concluding that more than 10 per cent of their turnover is accounted for by regulatory costs, by implication that is more than 10 per cent of what we all pay as consumers for these services,” he adds.
In this week’s Money Marketing magazine we compare advisers’ regulatory costs with other professions such as lawyers. The differences are huge.
Apfa has also been preparing its costs of regulation index which will hopefully help politicians to hold the FCA to account.
Regulatory costs are a tax on consumers of financial services. They are a necessary tax to ensure consumers are not ripped off, but far too little work has been done to monitor these costs and to ensure there is enough discipline being applied within the regulator to keep them in check.
Hopefully armed with this new research and Apfa’s cost of regulation index, Tyrie and his committee will finally be the ones to apply some pressure to help ensure consumers are getting value for money from their regulator.
Paul McMillan is group editor at Money Marketing- follow him on twitter here