BCG Survey Reports Doubling of Compliance Costs in Last 4 Years
According to a report issued by The Boston Consulting Group, a global wealth management consulting group, wealth managers spend approximately 4% of total operating expenses on legal and compliance costs, which amount is more than double what they spent in 2012. The report surveyed global wealth managers in multiple countries and across several business entities and involved “more than 1,000 data points.” Calling “tightening regulation,” a major worldwide trend, the report argues that “regulators worldwide remain determined to increase transparency in the products, prices, and processes of wealth managers.” In addition to the increase in direct legal and compliance expenses, the report maintains that regulatory spending can represent up to 13% of IT costs.
OUR TAKE: This BCG report is consistent with the KPMG study of hedge funds, which found that firms globally spend about 7% of total operating costs on compliance (which figure does not separate out associated IT costs). (See http://blog2.cipperman.com/2013/10/hedge-fund-firms-spend-at-least-700000-on-compliance/.) We believe that this translates to spending approximately 5% of total revenues on compliance infrastructure including people and technology. Firms that don’t meet these benchmarks will continually fall behind their rivals in the competition to attract institutional assets.