Regulation has been cited by 91 per cent of the investment management sector as the biggest barrier to growth.
The PricewaterhouseCoopers and Confederation of British Industry Financial Services survey is carried out quarterly of 94 financial services firms.
This figure was the highest for 20 years as the sector faces a high level of uncertainty and waits to see how regulation will be implemented. Firms were also concerned about statutory legislation.
Despite this, both optimism and profitability remained strong for the fourth consecutive quarter. Staffing also increased for the third consecutive quarter and strong growth in employees was forecast for 2013, contrary to other areas of the industry.
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Robert Mellor, hedge fund practice at PwC, said: "In the current environment of economic uncertainty, but comparatively stable financial markets, it will be interesting to see if retail sales can improve on 2012's disappointing figures. The first quarter of 2013 will be crucial if the sector is to justify the strong optimism that has been its hallmark throughout 2012.
"Regulatory uncertainty is exceptionally high and is seen as a barrier to growth by 91 per cent of respondents; a striking response and highest figure in more than 20 years of survey data.
"The sector also faces a particularly high level of uncertainty over the impact of new regulations. The final implementation of the alternative investment fund managers directive (AIFMD) remains frustratingly unclear, firms are waiting to see how RDR reforms will affect their business and the sector faces a range of emerging initiatives such as the EU's proposals on shadow banking."

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