Marr, who is now director of The Red House, says the FSA’s vision for the future of the IFA sector is unattainable for the vast majority of adviser firms.
He says: “Large networks and nationals have business models that are so based on commission that the cost of converting will decimate their economic model and lead to a wipeout of the IFA community.”
Marr says providers that own IFA firms face the additional burden of restructuring these businesses as well as being hit by the costs of adapting to the RDR themselves.
He says: “The change from up-front earnings to long-term fees will cause a huge hit on short to medium-term profitability. I do not think providers have thought that through – it is going to be a major challenge.”
Sesame network and direct managing director Nick Kelly says the challenge of moving to adviser-charging will lead to evolution rather than a decimation of the market.
He says: “There will be a number of challenges for the industry but in the medium to longer term, models will evolve and networks will be at the forefront. Where there is demand for change, advisers will move to a new structure and we will support them through that transition.”
Friends Provident spokesman Peter Timberlake says: “We have not seen an estimate of the cost of making the transition to adviser-charging so it is too soon to say what impact that will have. We should be looking at the benefit these changes will bring to clients.”
In the RDR consultation paper the FSA estimates the one-off costs of adapting to the review would be £430m plus £40m a year. But many in the industry, including Ernst & Young, suggest the regulator has underestimated the costs of adopting adviser-charging.