Wealth managers face £500m compliance cost bombshell

The cost of compliance for wealth managers could hit £500 million by 2015, leading high profile executives to call for the regulator to work more closely with the industry.

Spiralling FSA fees and levies alone have eaten up 17% of the industry’s profits, with the total bill on direct and indirect compliance costs set to reach £420 million this year.

The estimated figures, compiled by Compeer, equate to around 10% of revenues across the wealth management industry being spent on total direct and indirect regulatory costs, a figure that is expected to rise. By 2015 the benchmarking and research group expects the wealth management industry will spend a collective £500 million on compliance.

The findings have led to calls from senior industry figures for the new regulator to engage with the industry to stem the rising costs.

Paul Killik (pictured), founder of Killik & Co, estimates his firm is spending between 8% and 10% on regulation, leading to concerns that this will eventually have to be passed on to clients. The firm has already had to double its administrative charge for contract notes from £5 to £10 to recoup the cost of the FSCS levy.

Killik says costs could spiral from here unless the incoming Financial Conduct Authority makes more of an effort to understand different business models and tackle what he describes as a growing compensation culture.

‘The annualised figure of 10% feels like the right number and no doubt it will continue rising. If there is a change in attitude, I may feel confident that things will get a bit better. If we can work together on sensible issues that worry the regulator we can help to come up proposals on how to put things right,’ he said.

Paul Chavasse, head of investment management at Rathbones, estimates the firm is spending less than the 10% headline figure on regulation at around 6%.

He highlights RDR follow-up work, the introduction of the FCA-PRA and incoming European regulation as significant ongoing costs for the business, and highlights the difficulties of budgeting for interim FSCS levies.

‘One has to look at compliance costs separately as a cost that is going up, and you never want a cost that is going up because it squeezes you and your clients in the long run,’ he added.

Compeer’s findings are in line with those of Brooks Macdonald, which estimated spending 10% of its income on regulation in 2012, while Courtiers’ estimate stood at 15% to 20%. Jonathanfry, meanwhile, is budgeting 10% to 15% for this year.