Regulation costs every advised client £170 a year

External compliance and inhouse management of regulatory affairs has added nearly half a billion pounds to advisers’ expenditure, Chris Hannant has claimed.

The director general of the Association of Professional Financial Advisers said research conducted among advisers over the past two months revealed that advisers are overburdened with meeting the cost of regulation.

He said: “Smaller firms in particular tell us much of these costs come from hiring external compliance support, or using internal resources on regulatory matters.

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“As individuals face greater responsibility for managing their financial affairs, they will need affordable advice. It needs to be easier for advisers to operate and serve their clients. This isn’t about compromising on standards, this is about cutting the burden of compliance and the cost to clients.”

The research showed that the cost of regulation equated to roughly £170 per client each year, suggesting if costs continue to rise, they could ultimately have to be passed on to the end user, pushing up the cost of advice.

Therefore, APFA has renewed its calls for the FCA to take action to reduce the direct and indirect costs of regulation.

For all firms with annual income under £1m (90 per cent of those surveyed), the overall costs of regulation equate to 12 per cent of their income. Based on the latest understanding of the size of the industry, this equates to an overall year cost of £460m.

The research also shows that the regulatory burden is bigger for smaller firms. For those with annual income between £100,000 and £250,000 the cost of regulation equals 19 per cent of their income, and for those with annual income below £100,000 it is 20 per cent.