Cynics who suspect that the never-ending cascade of regulation that governments are imposing on the financial sector is designed mainly to help massive corporations keep competition from smaller firms at bay from small can claim yet another victory for their argument.

Cynics who suspect that the never-ending cascade of regulation that governments are imposing on the financial sector is designed mainly to help massive corporations keep competition from smaller firms at bay from small can claim yet another victory for their argument. The latest figures from the UK's Association of Professional Financial Advisors show that advisory firms spend almost one-eighth of turnover on compliance in 2013, with the smaller firms making by far the greatest sacrifices.

The firms that responded to the underlying survey were taken unselectively and with no discrimination from APFA's membership. The trade body merely asked its firms to volunteer information and then stratified the results. Some of the firms were solely advisory; others were partly discretionary wealth managers but not mainly so. As the table below shows, fixed compliance costs at these firms (such as fees paid to or in respect of the Financial Conduct Authority, the Financial Ombudsman Scheme, the Financial Services Compensation Scheme and the Money Advice Service) stood at 4% for the very smallest firms and only 3% for the others.

Of much more interest are the figures for costs that are not fixed, i.e. variable costs such as salaries for compliance staff and consultants. For the smallest firms, the percentage spent on internal compliance staff and/or external compliance support is generally higher, reflecting the fact that these firms generally have to rely more on external support rather than having their own internal compliance staff.

According to the figures, firms with an annual turnover of less than £100,000 spent 4% on fixed compliance costs and 16% on variable, making 20% in all. The next tranche, £100-250K, spent 3% on fixed and 16% on variable, making 19%. The next tranche, £250-500K, spent 3% and 8%, making 11%. Finally, firms in the £½-1 million range only spent 3% and 5%, making 8%. Firms larger than that are not included. The figures for all firms on average are 3%, 9% and a total of 12%.

Referring to the retail mediation activities returns that all firms should send in to the regulator every six months, the report goes on: "Aggregated RMAR data from [the] FCA shows that the total revenue earned from all regulated business done by financial advice firms in 2013 was £3.8 billion. If on average firms are spending 12% of their revenue on regulation, this means approximately £460 million was spent on regulation across the sector in 2013."

APFA has probably been the most vocal advocate of cuts in red-tape as far as the RMAR is concerned. Its members have often raised questions about whether the copious data they have to send the regulator is ever used. As this is hardly sensitive financial crime data such as that found in suspicious transaction reports, financial advisors see no reason why they should not receive plenty of feedback about the uses to which their information is being put. So far, however, the FCA has been uncommunicative on this point. A spokeswoman for APFA told Compliance Matters: "We're asking them to be clear about it. It's not clear that they make any use of it at all."

The FCA has been listening to criticism, however, and has recently made some disclosure requirements less onerous, with more possibly to come, although since the RMAR's inception the burden of reporting has grown. The APFA spokeswoman summed this up: "They keep adding questions. It's got heavier over the years. We are asking for a wider review rather than reforms on a piecemeal basis. They have, however, made changes and are are still looking at it. It's an ongoing process."

Data from NMG's Financial Advisor Census shows that on average an advisor has approximately 125 active clients. With 22,000 advisors in the market this means that approximately 2.75 million people are being advised on a regular basis. Assuming the annual cost to the industry of £460 million is passed on to clients, each client is paying an average of £170 per annum to cover the cost of regulation. The total revenue figure for 2013 of £3.8 billion comes from Financial Advisor Market: In Numbers Edition 2, which APFA published in April.