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FSA stats: RDR costs could reach £2.6bn in 5 years

FSA Letters 480

The one-off RDR cost to firms could hit £1.5bn with total costs reaching up to £2.6bn after five years, according to the latest FSA figures.

Figures compiled by Money Marketing from FSA data suggest the total one-off cost to firms of all elements of the RDR could reach £1.48bn. The figures also suggest annual ongoing costs to firms of up to £233m, meaning the total RDR costs to all firms over the first five years could hit £2.6bn.

This represents a huge increase on the original FSA cost estimates of £430m one-off and £40m ongoing made in June 2009. It is also much higher than revised FSA cost estimates in March 2010 which put the total cost of the RDR to firms at between £1.4bn and £1.7bn in the first five years.

Last month, Money Marketing submitted a freedom of information request for the total RDR cost to firms and the regulator. The FSA did not give cost details but signposted relevant policy statements and consultation papers which it says contain the latest cost estimates.

Based on these figures, Money Marketing calculated firms’ one-off RDR costs of up to £1.48bn and up to £223m in annual ongoing costs which include adviser charging, the legacy commission ban, the ban on cash rebates and payments between fund managers and platforms, professionalism and data collection on adviser charging and complaints.

In addition to the costs to firms, the FSA’s costs have risen 303 per cent to £12.9m, up from an original estimate of £3.2m.

An FSA spokeswoman says: “We believe these changes are necessary to increase consumer protection by improving the quality of advice and reducing the incidence of misselling.”

Evolve Financial Planning director Jason Witcombe says: “This is an incredible amount to deliver the RDR, the focus should now be on making it work.”

RDR costs table-March 2013

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Comments

There are 29 comments at the moment, we would love to hear your opinion too.

  1. Do I need new glasses or does that really say £2.6 BILLION!!!
    All based on a 3 for and 2 against decision by people who have now gone.

  2. David Cameron has no worries about the EU running our Financial Services down as the FSA are making a far better job of it

  3. Those pro RDR enthusiasts…and columnists, who sneered at comments and argiments used by myself and many others regarding the ineffective and downright nonsensical cost benefit analyses can now explain what went wrong.

    Please.

  4. Now you know why Standard Life are trying to limit the heritage product changes they need to make and the majority of providers will be making similar decisions. It just doesn’t make financial sense to keep pumping money into old products with a limited shelf life.

  5. And, it appears, no one at the FSA has been called upon to explain how and why the costs of its RDR have been allowed to balloon from an original (evidently and almost certainly quite deliberately massively understated) estimate of £600m to £2.6Bn.

    Instead, the FSA just rattles off that stale old chestnut of these changes being “necessary to increase consumer protection by improving the quality of advice and reducing the incidence of misselling.” Never mind the costs ~ we’re on a mission and we don’t give a toss about how much everybody else has to pay for it. And yet….

    The Regulators’ Compliance Code is a central part of the Government’s better regulation agenda. Its aim is to embed a risk-based, proportionate and targeted approach to regulatory inspection and enforcement among the regulators it applies to.

    Our expectation is that as regulators integrate the Code’s standards into their regulatory culture and processes, they will become more efficient and effective in their work. They will be able to use their resources in a way that gets the most value out of the effort that they make, whilst delivering significant benefits to low risk and compliant businesses through better-focused inspection activity, increased use of advice for businesses, and lower compliance costs.

    As written in 2007 by Pat McFadden, now a member of the TSC which seems to be collectively blind even to the very existence of the Code.

  6. So, who is going to stick their head above the parapet and say to the FSA, you were wrong and you need to backtrack and reverse this lemming rush to FS industry disaster.?

    Not me!

    I have a year to go before I plan to retire, which may come earlier if someone is prepared to pay a decent price for my practice from my networks, so in effect it is down to the younger end of the industry to fight against this mess and come up with a solution.

    Solutions:-

    1. Keep the new exam entry level qualifications for all advisers, new and existing.
    2. Allow providers to install commission options to investment business, but cap the levels across the sector to say max 3% initial up to £50K, 2% up to £100K, 1% over £100K with a max 0.25% trail from all levels. No uplifts to commission levels permitted.

    3. Provide the industry with a properly researched, dedicated set of tools and software to facilitate full financial planning and cashflow forecasting, pension planning and protection planning free of charge.

    4. Final solution, all Financial Advice on all products, Investment or protection to be only available as Independent Financial Advice, no restricted, no tied services and providers have to use the IFA channel for product distribution.

    Simples!!!

    Trouble with the above is that it is a simple set of solutions which the mentally challenged regulatory body and its inadequate staff are unable to comprehend, because it would work and make our industry a safer place for clients and prectitioners and eliminate forever commission bias and place the gold standard of financial advice firmly where it has always been, the Independent sector.

    If we continue down this route there will be no Independent sector of note in a few years time and we will see millions of consumers left high and dry and at the mercy of banks and tied advisers.

  7. The colossal waste of public money (because even though this comes out f the industry the industry is funded by the public) is a matter for the public accounts committee.

    And if there is 50p’s worth of added consumer protection as a result of this mess then I am a banana!

  8. Methinks this country could make better use of £2.6 Billion

  9. To the Editorial team.
    How about forwarding this research to the TSC for a comment, then publishing the reaction from Tyrie?

    And to think that zealot, Sants who brought about this calamity has jumped in a liferaft filled with more cash than you could shake a stick and set sail with two fingers raised at us all.

    Good ‘ere innit?

  10. I wonder what the FSA would say had I recommended an investment for a client and, 2 1/2 years in, it turned out to be 3x more expensive. Say the TER went from 2% to 6%.

    Would that be ok I wonder?

  11. Its interesting how the FSA spin has changed regarding RDR, from consumer confidence to consumer protection ?
    And there is little point banging on to our MP’s or PM as they simply do not care !!! this £2.6 billion ER ? yes £2.6 Billion is paid for out of our own pockets not the public purse..
    And the turkeys who voted for christmas, now have the sound of the classic Wizard song ringing in thier ears, except now, it is christmas every day !!
    And we are on the menu.and there is no wishing about it ? The FSA get the prezzies and we just get our necks stretched, plucked, gutted and a nice big RDR onion stuffed up our arse.

  12. What an incredible amount of wasted money. It is actually eye watering, and all in the name of consumer protection? £2.6 billion to implement plus £233 to run is disgusting when 1 signed single form by a client (like the common quotation form) stating t he amount to be paid to the adviser is to be £X, Y or Z. Its a disgrace and the clients will pay through the nose for it but little or no extra protection. All you former Pro RDR people should also be ashamed of yoruselves. All the spouting about how good RDR will be for clients and good for the industry have, by in large vanished from the forums – I presume you are hanging your heads in shame and disgust with the rest of us – and so you should.

  13. Add to it the human cost of lifes ruined, marriages ruined and I have no doubt one or two who have taken their own life
    The Government backed down on the booze levy understanding that why punish everyone for the misuse by a few so why are we all being punished for the misselling of a few.
    If a Government minister admitted to wasting £2.6 billion he would be out the door
    Please God send us someone to save us from thisWhitehall farce.

  14. absolutely farcical..2.6 BILLION !!! for what !
    I totally agree with Ned’s comments re commission but as he points out probably too simple and won’t decimate the industry enough for the powers that be. Well my network has just increased my charges substantially so after 33 years in the industry i am off into my retirement, the industry will get by without me but i’m not sure it will be a better place for it. Thank you Sir Hector and all who contributed on behalf of me, my family and most importantly my clients who are just ordinary folk and who cannot afford my fees up front.

  15. PS – I would appeal to every reader here to copy and paste the link and email your MP along with the TSC and demand the politicians involved.

  16. Can anyone remember what was the original reason behind RDR?

    Scandalous

  17. I am giving a copy of this to each of my clients.
    It will help them understand why financial advice costs are increasing.

  18. This is an absolute disgrace. The TSC should reconvene and take a long serious look at what is happening . This will only increase costs for those able to pay it will probably meann that HNW will have to have £200,000 to invest before an adviser and or bank b/s will take them on. Those with less will be left out of any chance of advice. Well done FSA

  19. I read the comments in all these articals from where ever, but there is not a single person in government that is interested in doing anything about this complete hypocrisy and unabridged scale of wreckless spending by self indulgent egotistical FSA/FCA bunch of free loaders.
    Q. have I overstated the problem?
    A. ……..

  20. I do not hink anyone will be surprised by these figures, except perhaps that the increase is so low. The FSA is unaccountable and imposes it rules and its costs on the industry. They are not business men and do not look at any cost benefit analysis and do not have regard to budgets. The coalition wanted to get rid of Quangos and this is a quango ripe for disposal as it is not fit for purpose. It lets the Banks and the big organisations get away with almost anything. It admitted that it was ‘looking the other way’ when the banks had their problems. Even now there is a suggestion that the price of gold was being manipulated and this is yet another USA inspired investigation. The FCA does not inspire any confidence that it will be any better. Fewer rules, devised by a proper ongoing consultation system, and all FSA/FCA having the same qualifications as those whom they are regulating, and a proper accountability to Parliament is required.

  21. Sounds a huge amount of cost to me.

    However, those comments that suggest that RDR should now be back-tracked would only be making things even worse!

    The money has been mostly spent already; the changes made; businesses re-modelled. What we need now is a period of time for things to settle down. We don’t need more changes or back-tracking at this time.

    Not that they ever would back-track anyway!

  22. How many much needed affordable dwellings could that vast amount of money provide?

    How many more socially useful benefits for children, the elderly and the disabled could that vast amount of money provide?

    Society needs balance, I see none here.

  23. These figures are shocking, but I must admit to not being clear on how the costs outlined in the table and article are arrived at.
    For example, “the ban on cash rebates and payments between fund managers and platforms”. If a cash rebate is banned, presumably one of the parties pockets that money. Is that then a “cost” to the industry as a whole? Or is the article saying that these are the costs to the businesses involved for amending their systems?
    Is the legacy commission ban a cost to the advisory firm if it is replaced by an ongoing advisory charge of the same amount/%?
    How is the ongoing cost of professionalism measured? If I was already level 4 before RDR and a member of the CII, there would not be an additional cost for ongoing professionalism other than the time involved for more CPD, and if it is time, what hourly rate has been attached to that time?
    And what about “ongoing adviser charging”? Is that the cost of advisory businesses transitioning to adviser charging, because, presumably, once you have moved to ongoing adviser charging and new processes are embedded, how much of an ongoing cost is there actually to your business?
    And will these all be a cost to the firms involved anyway, or will a lot of it end up being a cost to the consumer?
    I am not saying the article is incorrect, it’s just not clear to me how these figures are arrived at.

  24. The one area that FSA cannot control is advisers leaving the industry, wake up and look networks advisers are leaving the industry in there hundreds, there won,t hardly be any industry left,to regulate.

    it will all be gone, then what will happen the people who are employed by the fsa they will be on the scrap heap with the rest of us, except the people at the top who made the decisions to over-regulate it, they will be moved over to anther industry to ruin.

  25. headbelowthe parapet 15th March 2013 at 5:04 pm

    It always seemed bizarre to me that the RDR was designed to tackle consumer detriment assumed to be £223 million per annum at a cost of £221 million per annum – it seems to me that a primary school child could work out that there seems to be a net deficit of £2 million pounds per year. This is before the implementation cost of £1.7 billion has been accounted for.
    And then surprise, surprise the cost has rocketed by £10 million per annum and by £900 million initially.
    There’s no going back now, but this is the result of bad regulation, corruption and unaccountability.
    Great!

  26. Re head below the parapet. what a simple fact.
    223m consumer detriment and it has cost 2.6BILLION to sort out!! You have hit the nail on the head and there will probably be the same consumer detriment…. It will be interesting to see the figures in 2014 for 2013.

  27. This “estimate”seems way on the low side to me if you include all the changes being made across the industry ! – and is this the real (estimated)cost allowing for inflation and what the money would have earned if (instead of disappearing into a black hole it had been invested – lets say at 5% pa compound to appease the regulatory mindset) But its not just the FSA – what about the Treasury who have supported this cost and have been warned countless times that the RDR will result in a reduction in Revenue to them from businesses failing, reduced taxation etc etc. Unfortunately the coalition are just as guilty as the labour govt for allowing this to happen. I despair at the lack of foresight or willingness to change what was never requested by real consumers but which has been forced on the country by unaccountable highly paid legends in their own minds

  28. How utterly depressing. RDR has been very poorly executed. The real issue was always how do advisers get paid and how can bias be removed. This could have been solved with a few minor tweaks to commission (and I say that as someone that charged fees from 1999).

    Subsequential issues were about the advisers ability to do the job properly – proper research and due diligence. These are resolved from experience, knowledge and process. Few really doubted the qualification requirement issues, but clearly some have engaged rather more easily than others.

    Sadly, RDR was and is a response to very poor practice by a number of advisers that threaten the rest of us. Whilst I have sympathy with those that want to lay the blame at the door or Mr Sants, the truth is that we have collectively failed to educate, inform and demonstrate trustworthy behaviour. So we are all partly at fault on this, journalist, providers, advisers, regulator and Government alike.

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