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RDR: GPP changes to cost providers up to £13m each

The FSA’s new proposals to extend the ban on commission to GPPs and investments linked to occupational schemes is estimated to cost providers up to £13m each.

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.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. How on earth can this be best for the employees or “consumers”? We look after over 500 members of group pensions. In all cases we provide each member with full advice, conduct a retirement analysis for each individual, provide ongoing advice on fund choice and conduct annual reviews. All this is paid for from the 1% amc paid by all scheme members. In all cases the employer took the view that their responsibility ended with making pension contributions, not paying for advice. Therefore if these proposals go ahead, none of these group scheme members will be able to receive advice. Is that really what the FSA is trying to achieve?

  2. Bank tied staff and insurance tied agents willt be laughing all the way to the bank as they will be the only ones who give advice. RIP IFA,s

  3. As “Anonymous” points out by implication, the last thing bank staff do is to give advice – they sell their employer’s products.

    If the FSA is “helping retail consumers achieve a fair deal” (see then this is precisely the wrong way to go about it.

    But I suppose the banks pay their wages, so naturally they are incapable of doing anything against their interests – such as regulating them effectively.

  4. In reply to Jason ball

    We also have an employer who feels that the employee should fund the cost of advice. We cannot operate in the 1% world. 1% is an unrealistic charge for any contract. To provide advice to this company we charge 0.75% of the pension funds as agreed by the employer, but also declared and signed up to from the employee.

    The TER for the pension ranges from 1.5 to 2.0% pa including dealing.

    Whilst not stakeholder friendly, this is realistic, good value and I believe would be compliant post RDR,

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