Business RDR costs could reach £2.6 billion by end of 2017

Money Marketing said it had totalled estimates the Financial Services Authority (FSA) has previously given about the costs the RDR will bring to firms and arrived at the figure. The FSA told the publication that the figures represent its latest estimates for businesses' RDR costs in response to a freedom of information request for the data.

Firms will incur up to £1.48bn in one-off costs related to the RDR and face an ongoing annual outlay too, according to the figures.

The ongoing RDR costs, which could reach up to £223m each year, account for the measures firms have to implement to comply with rules on adviser charging and legacy commissions, among other things.

The majority of rules stemming from the RDR were brought into force on 31 December last year. The FSA had previously decided to take action to improve transparency over the charges consumers face in the retail investment market.

Under its RDR regime the FSA has sought to make payment arrangements in the retail investment market more transparent after raising concerns about suitability of advice being given to investors as a result of the incentives on offer to advisers to recommend particular products.

The RDR rules now require that advisers are only paid directly from their clients for the personalised recommendations they make. They are barred from receiving commission from product providers and, if labelling themselves as offering 'independent' services, must provide advice based on a consideration of all suitable products available in the market relevant to clients.

The advisers must make a declaration about whether they are offering independent or restricted advice services to clients in writing in good time before they provide those services.

Generally, independent financial advisers (IFAs) will be required to consider all available products and providers in the market before making a personal unbiased and unrestricted recommendation to clients on what to invest in. Restricted advisers will legitimately be able to offer advice based on a smaller list of products or providers, even if taken from a single source, providing they are up front about this with clients.

However, both IFA and restricted advisers will be bound by the adviser charging rules other than in cases where restricted advisers can be said to be offering "basic advice", a simplified form of financial advice generally using pre-scripted questions to determine whether a financial product will suitable for a customer. In those circumstances restricted advisers could legitimately obtain fees, commission or other benefits from product providers or others.

Final rules relating to platforms have still to be set by the FSA.