Policymakers often ask: "What is the cost of regulation for adviser firms?"

Since 2014, APFA has conducted an annual survey of advisers about the costs of regulation that firms have to pay. This takes place against a backdrop where one of the biggest concerns for our members is the business cost both of the total amount of direct fees that the sector pays in respect of the FCA, FOS, FSCS and MAS and the indirect costs of regulation and compliance.

This report summarises the findings of our research into the cost of regulation in 2015/16. Our sincere thanks go to all those firms who took the time to complete the survey. With the current review of the FSCS levy approach just around the corner and the government and regulator proceeding with the FAMR recommendations to boost access to advice, data on the costs of regulation to firms is more important than ever.

Summary of the research findings

Our research found that on average, small to mid-sized firms are spending 11% of their income on direct and indirect regulatory costs. Of this, 3% is spent on direct fees and levies, and 8% on indirect costs. The proportion of income spent on direct fees is the same as over the previous two years while for indirect costs it has fallen from 9% in both 2013/2014 and 2014/15. However, in absolute terms, for all businesses with revenue of less than £1m, average direct fees went up from £6k to £9k.

With total revenue earned from all regulated business done by financial advice firms in 2015 amounting to £4.27bn, this means the sector spent an estimated £470 million on regulation in 2015. In 2014 regulatory costs to adviser firms were also estimated at £470m, while for 2013 the figure was £460m.

Assuming these costs are all passed on to the consumer, we estimate that the average client is paying in the region of £160 each year towards the cost of regulation.

Download the Costs of regulation 2016 report
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>   PDF Costs of regulation 2016 report

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