In years ahead, when memories have faded, the guilty have moved on to even more lucrative positions and the current savings gap of £9trn will seem acceptable, I want to look back and feel satisfied I did all I could to intercept the RDR travesty.
To achieve anything, we need all the disaffected advisers to publicly denounce the RDR experiment as the sham that it is. Of course, this will not happen – many have been hammered into the ground and no longer have fight left in them. Others raise their heads and shout that they have embraced the changes while even more are making the best fist of it that they can.
As a nation, we are suffering through the most stringent financial crisis since 1929 and, regulators and bankers apart, we are all struggling to keep up. This led me to wonder about the true cost of the RDR, not in human, but in monetary terms.
Back in 2008, the FSA made vague noises about £60m one-off costs, £51m ongoing and around £6,000 per adviser. The one-off cost had risen sevenfold by June 2009 to £430m, with the annual cost miraculously downsized to £40m. In March 2010, policy statement 10/06 supplied an Olympic-sized uplift to £750m one-off and £205m annual. These are just industry costs, the loss to consumers cannot be fathomed although I bet that the average calculator could not cope.
There is another cost that has to be ratified and this is another borne by the industry. I refer to the financial cost attributed by the FSA to its efforts in respect of the RDR. As at January 20, 2012, this had reached a stupendous £5,174,000. I am also advised that an additional £4,805,000 is expected by way of future outlay, making a mind-numbing total of £9,979,000.
If all the latest estimates are correct, then the initial five-year cost, ignoring consumer detriment arising from a lack of advisers, will be almost £1.8bn.
Readers will recall that the FSA contrived consumer detriment figures which were published in the cost-benefit analysis within PS10/06. These figures were also dredged up for the benefit of the Treasury select committee during its hearings. Anybody with a calculator, a half-functioning brain and the available time is easily able to destroy this consumer detriment fiction but, let’s imagine for one moment that these inflated figures are correct. They amount to £1.115bn over a five-year period.
So, let’s get things clear. The RDR is designed to rid the industry of consumer detriment and we (and the Treasury select committee) are told that although the cost to the industry is high, it will be dwarfed by the reduction to consumer detriment. My calculator tells me there are no savings.
After five years, the net cost of imposing the RDR will still be £685m. In fact, if the FSA figures are correct, it will be 2054 before there is a saving.
So, all you RDR apologists who decry outbursts such as this, look at the figures, work out the “savings” and then tell me that the RDR makes financial sense.
Alan Lakey is partner at Highclere Financial Services