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Alan Lakey: The true cost of RDR 'savings'

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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

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Readers' comments (33)

  • I would like to add that this column was reduced or censored, whatever and that the initial paragraph was removed. This said

    "My last column excited comment because the titling by the sub-editor only partially connected with the content. This provoked some posters into claiming that I had become an anti-RDR jukebox which, apparently, is a bad thing."

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  • hear hear.

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  • Isn't it fantastic that the chaps at the FSA are now using foresight instead of hindsight - if Alan's figures are correct then they have the foresight to ensure that in 42 years they can balance the books!

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  • Well said Alan, the damage that is being done to the industry is an absolute disgrace and may well do such damage that the industry may never recover.

    The UK used to a the leading financial services economy generating billions for the treasury in taxes and economic growth. Now thanks to nanny state government the public are to be protected from themselves at the expense of the people best placed to help them - how a one proud reputable industry has been crucified by self centred bureaucratic idiots.

    Government needs to wise up and stop things before it is too late

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  • The unfortunate thing Alan is that most of the 'root and branch reforms' in the UK since 1997 have cost fortunes and achieved negative outcomes. This seems to be what we do best as a country. This is also why in due course, the UK will end up owned by interests beyond our shores. We have become muppets in short. Many of the persons in senior public positions are not fit to run a bath, but there are a lot of them and they take car of their own. RDR will happen, a range of hideous results will unfold, but hopefully most of us will survive. I hope you are one of them as I would miss your contributions.

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  • Keep at it Alan. Most of us are behind you.

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  • Well said Alan

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  • Alan, you are clearly missing the point. All of this gave the FSA something to do once they had proved beyond doubt that they failed at everything else.

    Plus, it will prevent consumers losing money ever again.

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  • Hector said they thought that if they raised standards everyone could become stockbrokers....

    What a pink and fluffy world they must inhabit.

    In the meantime the regulatory juggernaut is still concentrating on IFA files, systems & controls and reams of sheets with boxes ticked rather than consumer outcomes.

    Reminds me of the Xmas panto.... look behind you!!

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  • No one has mentioned the extra cost the nation will bear, with advisers drawing benefits from the state!

    Also the cost on prescriptions, I have just returned from the Docs and have for the very first time ever been diagnosed with anxiety and depression! No prescriptions seem to be available for Hectoritus!

    My Doc tells me to look for another job in order to save my sanity and was horrified to hear what hoops I am trying to jump through in order to keep afloat!

    Why oh why do we not have an organisation that would back us! I listen to smug comments from some people on here, the "I’m all right jackers" they fail to see that this will bite them in the ass, if not now, very soon! Alan's comments echo most advisers’ feelings, many who dare not comment for fear of recrimination. Thanks Alan for your bravery!

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