RDR: FSA hints at extra costs of IFA exodus

The FSA today warned firms to be prepared for extra "short-term costs" arising from an anticipated exodus of advisers in the independent sector.

In its RDR Consultation Paper released today, the regulator says research estimates around 20% of firms will leave the independent sector, with the majority joining the non-independent sector. 

The paper says those firms looking to exit the independent sector are mostly small and commissioned based, adding costs may arise as a result of these moves. 

In addition, the regulator is estimating the incremental compliance costs of implementing the RDR to be £430m as a one-off cost and £40m a year after that. 

Annualised costs amount to £140m over five years, it says. But it adds this represents approximately 0.3% of annual gross new business premiums and 1% of industry profits. 

The FSA says the direct costs to themselves are estimated to be £2m one-off, and £1.2m annually. 

The one-off costs consist of improvements in its information systems; while the ongoing costs consist of additional supervisory staff costs. 

The FSA is also warning of an increase in product prices in the short term, but expects an increase in price may be competed away through increased transparency of product prices, such as price comparison sites, in the long term. 

Summary of incremental compliance costs for intermediaries  

One-off costs

• Professional qualifications £120m
• IT/Systems changes £71m
• Disclosure documents and marketing £19m
• Remuneration: designing a tariff £1m

Total one-off costs £210m 

Ongoing costs

• Disclosure: explanation of status £14m
• Remuneration: ongoing revisions -
• Disclosure: remuneration £11m
• Independence: additional search costs £16m

Total ongoing costs £40m