The total annual cost of regulation for the financial advice industry is almost half a billion pounds, according to research conducted by the Association of Professional Financial Advisers (APFA).

This equates to around £170 per client per year. APFA is renewing its calls for the FCA to take action to reduce the direct and indirect costs of regulation.

Detailed research carried out by APFA with adviser firms found that for all firms with annual income under £1m (90% of those surveyed), the overall costs of regulation equate to 12% of their income. Based on the latest understanding of the size of the industry, this equates to an overall annual cost of £460million.

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% of their income, and for those with annual income below £100,000 it is 20%.

Chris Hannant, director general at APFA, said: “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.

“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. A lower cost of regulation could also help bring professional financial advice into the financial reach of a greater proportion of the UK’s population – a desirable goal give the changes to the retirement market announced in the last Budget.

“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. We also need to see clear action on introducing a long stop, to help reduce the cost of PI insurance.

“APFA has written to the FCA with a summary of our findings and a list of areas it needs to address. Good compliance is essential for the industry and for 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.”