Technology
Some Wealth Firms Devote Half Of Net Profits On Compliance - Survey
Some wealth management firms are spending up to half of their net profits on complying with a rising burden of regulation, with the cost standing at more than £400 million (around $628 million) in 2010, figures show.
At a time when regulators around the world are pushing for tighter controls on financial services, with laws such as the US FACTA Act and the UK’s Retail Distribution Review, the compliance burden is a major issue in wealth management, according to ComPeer, the research firm.
“The hidden cost of compliance, i.e. time spent on compliance matters by senior management, front office professionals and other non-compliance staff, is at least equal to the direct recorded cost of compliance,” the survey found.
As recounted in surveys by organisations such as Scorpio Partnership and PricewaterhouseCoopers last year, compliance is a major driver of cost rises in the wealth management sector, squeezing profit margins and driving demand for technologies to cope with compliance.
The estimated total costs of compliance - more than £400 million in 2010 - equates to about 10 per cent of income. For some sub-sectors of the industry this equates to at least 50 Per cent of net profit, ComPeer said.
In 2010, spending on RDR compliance, for example, surged by 50 per cent and compliance with tests on suitability of wealth management services expanded 11 times.
Among other findings, ComPeer found that clients claimed to have seen little benefit from the increased focus on compliance and fully expected the increased costs to be passed on to them.
ComPeer examined 50 of the top firms in the wealth management industry and also surveyed 300 high net worth individuals. The findings were obtained at a recent seminar attended by policymakers and industry luminaries such as Andrew Tyrie, chairman of the Treasury Select Committee in the House of Commons; Bruce Weatherill, a non executive director of ComPeer; Tim May, chief executive of APCIMS, Angela Knight, CEO of the British Bankers’ Association, David Harvey, CEO of STEP and Susan Wright of the Investment Management Association.
ComPeer said it intended the compliance survey to be carried out annually going forward.
