All advisers have felt the cost of implementing the RDR, but just how much have firms spent? One anonymous Dorset-based adviser gives Laura Miller his eye-watering breakdown.
"I am the only IFA in my practice. When 2012 started, we intended to let the Retail Distribution Review (RDR) pass without gaining the required qualification.
"My trail income is approximately £20,000 per annum, but that is commission and, over time, may dwindle as clients either choose to go or make changes to what they have.
"However, during 2012, because we have lots of clients with small investments – under £10,000 – and some pension clients who always want some advice, I thought that it would be daft, after 30 years serving these people, just to bow out due to an exam or two.
One IFA's eye-watering estimate of how much it cost him to be RDR-ready
"It has nothing to do with how we are paid. I was uncomfortable telling my elderly and faithful customers that I was no longer going to deal with them because I was not deemed qualified enough. They trust me implicitly."
And so it begins...
"So I chose to do my QCF Level 4. I had to pay out for the coursework and exams at an estimate that immediately cost £1,200. There were also exam entry fees (these are £425 a unit on the Institute of Financial Services' (IFS's) website, but I did my work through an external support service provider and it was slightly cheaper), which came to a further £1,500.
"With the cost of having to join the IFS and the Statement of Professional Standing fee, this added another £112.
Cost so far: £2,812.
"I then had five days out of the office to sit exam modules which were held in inconvenient locations requiring overnight stay. With travel and a stopover, that was an average of £200 per time, bringing a further cost of £1,000.
"My service provider then had two learning and course days in Huddersfield (I live in Dorset), with no alternative, which came in ata cost of £75 for each day. Again, with fuel and overnight stay, that came to another £550, plus two days’ business I could not do in the office. Cost of qualifying, by my estimate, was about £4,000.
"Then, of course, the coursework had to be studied. I took this pretty seriously and spent around two days out of the business each week for about 12 weeks.
"For all of that time I was not doing any work to service and get in client business, either with mortgages, general insurance or investments. The cost of that in lost business and “alternative productivity” would be, approximately, £400 per day. That adds up to £9,600 (which is consistent with our averages over the preceding years)."
Cost so far: £13,600
"In June 2012, mid-RDR learning, I was asked to attend a Financial Services Authority (FSA) audit meeting. I was given a bit of notice so decided to undertake a full internal audit myself and measure it against the FSA's likely expectations.
"I asked everybody to audit-file work, then reviewed our best-practice and treating customers fairly processes. I tested people for knowledge and went about ensuring that, if anything was asked of anybody, they would know what they were doing and how to explain it to the regulator.
"This put the focus off our business and we were all in training and revision mode for a couple of weeks. Instead of following up on business, the guys were organising their paperwork and revising 'whistleblowing' procedures and disaster recovery plans. Income as we know it plummeted.
"I estimate that two weeks of that activity cost the firm at least £8,000 in revenue. We took little new income."
Cost so far: £21,600.
"So I went to the FSA meeting and all seemed to go well. I was happy that they were happy. I was told that, following the audit, there were three possible outcomes: 1 'We find something and will need to account for it so we will visit'; 2 'We find all is well leaving no need for a visit'; and 3 'We find all’s well but will visit to check the checker’s work'.
"Well, we got our letter confirming all was well, but we got a visit scheduled in any case. This was not to check the checker’s work, we were told, but instead to conduct another, full, audit on the business. Meanwhile, RMAR (retail mediation activities returns) time had come around, and we had to let the accountant do that for a large fee, as I had no time to.
This article continues…
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Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress