Advice firms saw regulatory fees and levies jump by half in the space of a year, as the Association of Professional Financial Advisers urged policymakers to ease the burden.
According to the association’s Cost of Regulation report, direct regulatory payouts per firm, which include the cost of fees and levies paid to regulatory bodies, climbed to £9,000 in the 2015-16 tax year, from £6,000 in the previous year.
The trade body also estimated that companies with less than £1m revenue spent an average of £32,000 on the direct and indirect costs of regulation in the last financial year, with the indirect fees associated with compliance and reporting making up the largest part of this figure.
This is an increase from the previous year’s figure of £28,000.
Despite this, advice firms spent slightly less of their revenue on costs associated with regulation compared to the previous two years, with 11 per cent of income going on regulation in the last financial year, compared to 12 per cent.
According to Apfa, this figure intensified for smaller companies with an annual turnover of less than £100,000, as firms spent around 19 per cent of their revenue on regulatory costs, though this was down from the 28 per cent seen in the 2014-15 financial year.
Advice firms saw a rise in revenue during the last financial year, which meant the proportion of income spent on costs associated with regulation correspondingly fell, Apfa stated.
Chris Hannant, Apfa's director general, said fees which cover the running costs of the regulatory bodies continue to remain high, particularly for the smaller firms.
He said a substantial part of the increase in direct costs stemmed from last year’s Financial Services Compensation Scheme levy, adding: “This further underlines the need for a move to a more sustainable funding approach at the FSCS.”
The report, which surveyed 99 advice firms between June and September this year, estimated the average client is paying around £160 each year towards the cost of regulation.
Last year, Apfa called on advisers to make it clear to clients how much of their bill covers regulatory costs.
Mr Hannant pointed out that policymakers have said they are concerned about the need to give more consumers access to professional financial help.
“A key part of doing so is to reduce the disproportionate and unsustainable regulatory cost burden borne by advisers,” he said, adding Apfa will continue to push for radical reform of the FSCS levy and “make it fairer” for advisers.
Colin Low, chartered financial planner at Kingsfleet Wealth, said there are two issues here.
"One issue is the consolidation of IFA practices which will lead to greater turnover and, therefore, naturally higher fees, which I understand is the primary determinant of regulatory costs.
"However, the bigger issue is whether the regulatory costs are increasing dramatically because these have to be met by a shrinking sector of fewer firms."
