Summary of detailed findings for small retail financial advisers of our cost of regulation study
Summary of detailed findings for small retail financial advisers of our cost of regulation study.
The findings from our study The cost of regulation study that are relevant to smaller retail firms giving investment and pension advice are as follows:
- The highest incremental costs were the direct Financial Services and Markets Act-related fees collected by the FSA. These include levies covering the costs of the FSA, the Financial Ombudsman Service (including case fees) and the Financial Services Compensation Scheme (including the costs of compensation).
- Firms recorded cumulatively significant costs of record keeping requirements, spread across many separate rules.
- The incremental costs of regulation are about the same for smaller and larger firms in retail investment business, perhaps because most of these costs relate to meetings with individual customers.
- The incremental costs of regulatory rules were higher in retail firms than wholesale firms; when expressed as a proportion of a typical firm's operating costs. This is not surprising as the FSA has a more detailed regulatory regime for retail markets arising from clearly identified market failures.
- Most of the highest costs for retail investment business related to point-of-sale disclosure. Firms that took part in the study told Deloitte that without FSA rules they would spend less on:
- producing suitability letters;
- providing key features/ simplified prospectus for packaged products;
- ensuring products sold are suitable for clients' needs; and
- tailoring projections in key features documents to clients' circumstances.
- Other rules creating noteworthy incremental costs were:
- maintaining employees' competence including attendance at FSA seminars;
- attention given to cluster reports, speeches, etc; and
- providing periodic statements to customers where firms look after a customer's portfolio/account.