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&#39Aifa alternative to DPS could bring big savings&#39

Aifa&#39s alternative proposal to the FSA&#39s defined-payment system would result in one-off savings to the industry of £30m and subsequent savings of £24m a year, according to a cost-benefit analysis.

The CBA, carried out by consultancy Charles River Associates on behalf of Aifa and IFAP, says within the first three years of introduction, Aifa&#39s alternative, called the Menu Based Option or Price List, could save the market £95m a year as it fosters the development of a more competitive advice market.

CRA, which carried out research into commission bias for the FSA when it published CP121 in January, says Aifa&#39s plans would result in considerable savings to the industry compared with the DPS.

The CBA considered three possible scenarios for postdepolarisation – the DPS with big numbers of authorised financial advisers alongside the DPS without any AFAs and the Aifa&#39s price list scenario.

The first would cost £77m in the first year and £65m a year thereafter, the second £77m and a further £71m annually while Aifa&#39s proposal would cost £47m and then £41m thereafter.

Additionally, as consumers begin understanding they are paying for advice and recognise IFAs as professionals, there would be a benefit of £95m a year to the industry.

The CBA concludes that the DPS would offer little benefits which would be outweighed by the costs it would force the industry to swallow upon introduction.

The costs come from training of staff, printing new literature and designing a new payment structure.

Aifa director of public aff-airs Tracey Mullins says: “We accept major change has to take place and it will cost money. What we are saying is the price list or menu-based option would not cost as much of the DPS in its current form.”

FSA spokesman Rob McIvor says: “We welcome this because it is good that what we have put forward in CP121 has provoked the industry to come up with alternatives that would meet the same objective as ours.”

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