The FSA believes that losing up to 20 per cent of IFAs is an acceptable cost to deliver the specific improvements brought in by the retail distribution review.
Giving evidence to the Treasury select committee this week, FSA chief executive Hector Sants said if the reduction in advisers was not acceptable, the regulator would not be pressing ahead with the reforms.
He said: “We have data that suggests a 10 to 20 per cent reduction in capacity could flow from the RDR measures. We have obviously deemed that to be acceptable or we would not be going ahead.”
Sants said the RDR was not “a panacea” for the investment market but it would deliver a transparent and fairer charging system, a better qualification framework for advisers and greater clarity over advice being offered.
He said: “I think the measures, when they are in place, will deliver those three outcomes. I do not think you should characterise the RDR as the panacea for the investment market.”
He was responding to a question from committee member and Conservative MP Mark Garnier who said that while the RDR is not wholly problematic, it has led to a significant proportion of IFAs thinking of leaving the industry. He said: “There is a significant proportion of IFAs, up to 30 per cent who are now thinking of coming out of the industry altogether.”
Sants said: “In the lobbying process, you tend to get these extreme statements made which do not necessarily come about in practice.”
FSA chairman Lord Turner said the reduction could be good for consumers. He said: “Some exit of capacity from the industry, which is therefore an exit of administrative cost, may be in the interest of consumers. It is a cost which is being absorbed.”