Compliance costs soar

1 April 2010 | By Nicole Blackmore

The estimate for compliance cost of the RDR for advisers has skyrocketed, with one-off costs rising from £430m to between £605m and £750m.

According to the FSA’s retail distribution review policy statement, published last week, its ongoing cost estimate for advisers has leapt from £40m to between £170m and £205m.

The FSA says the incremental compliance costs for the first five years of the RDR is in the range of £1.4bn to £1.7bn. It previously estimated it to be £600m.

This works out at between £305m and £370m per year, which the FSA says represents around 0.3 per cent of annual retail investment product new business.

The introduction of adviser-charging is the biggest cost category for intermediaries, with one-off costs estimated at between £140m and £160m, up from the previous estimate of £72m.

Ongoing costs, previously regarded as “negligible”, are now estimated at between £40m and £60m. The FSA says the increase in cost is accounted for, in part, by higher estimates from firms of the costs of the changes in systems required.

FSA head of investment policy Peter Smith says: “We do think IFAs can handle these costs. There have been situations where there has been real detriment to consumers arising from the poor quality of advice.

“From a cost-benefit perspective we have concluded that the costs to the industry in moving to this new world are worthwhile because the benefits to consumers are potentially so significant.”

But Aifa director general Chris Cummings says: “I am extremely concerned about the substantial increase in the estimated costs.

“The intermediary market could be hit with costs of more than £100m, which will have a major impact on firms.”

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