In the cost-benefit analysis included in today’s RDR paper, the FSA asked six providers to estimate the costs they would incur, both one-off and ongoing, including changes to IT systems, product re-design, promotion and staff training.
One-off IT system cost estimates varied considerably, from £1m to as much as £10m.
The FSA says: “Costs are likely to vary according to the nature of each firm’s current business model and the extent of the changes they would need to make, with firms already operating factory gate pricing having less new costs.
“The existence of multiple legacy systems arising from previous provider mergers and take-overs could add significantly to a provider’s costs if old product lines are still being marketed.”
The ongoing IT costs were not estimated to differ materially to those currently incurred although the FSA did flag up that firms currently paying commission will need to operate two separate systems if commission is allowed to continue on existing GPP schemes but is not allowed for new schemes.
Providers estimated one-off costs for management time, product literature, actuarial time spent re-pricing and re-developing products and launching new products to the adviser market to be in the region of £3m.
The FSA says the extent to which adviser firms incur extra costs depends to a large degree on whether they already operate a fee-based service.
It states: “The extra costs incurred will vary and might be expected to be higher for larger firms, although the impact for smaller firms with lower resources could be greater.”
The regulator says indirect costs for both providers and adviser firms may arise, including a possible reduction in employer and employee appetite for GPP provision, the re-allocation of costs and charges between types of employees with some winners and some losers, the possibility that fewer employees might be offered advice and a short-term reduction in adviser firms’ income.