With all this RDR kerfuffle, providers are keen to understand what the implications of new adviser remuneration models may be for product sales. Of course they are.
Chanakya, standing in a pub circa 300BC, said: “There is some self-interest behind every friendship. There is no friendship without self-interests. This is a bitter truth.” His mate James F Byrnes (always more hopeful after a couple of jars) added: “Friendship without self-interest is one of the rare and beautiful things of life.” Chanakya shook his head and ordered some more peanuts.
Of particular interest is how adviser remuneration based on advice (and divorced from product recommendation) is likely to impact on adviser propensity to recommend suitable solutions when remuneration is no-longer dependent on a product sale. The fear is that with the “product” now advice rather than products per se, and adviser income linked to the delivery of pure advice not to (potentially risky) sales, provider bottom lines may be hit.
Our work with advisers, though, suggests that the advent of RDR will not have a negative impact on adviser likelihood to recommend products in any significant way. Most believe that product solutions will be just as relevant post-RDR as now, with advice (rather than product) triggered remuneration only making it more important that advisers demonstrably help clients achieve their financial goals.
Advisers recognise that both the advice and the product are the means to achieving the end (the end being client financial objectives). Most appreciate that one without the other would amount to professional negligence.
There are certainly pressures on providers – sales of investment bonds have fallen by two-thirds since their high, regular pension premiums are under potential pressure from auto-enrolment and unit-linked endowments are virtually extinct. But a couple of weeks ago, I spoke to an adviser who observed that “it is not RDR that will kill advisory businesses… poor business plans will kill business”. And it is the same for product providers.
Now clients are paying more explicitly for advice, advisers feel that if anything they will be under more scrutiny to continually ensure (demonstrably) how they are contributing to better their clients’ lives. While the advisory proposition will be strongly positioned around service, its fulfilment will not be possible without the products that continue to be just as relevant to their clients, irrespective of the demands of RDR. Continuation of that relevance rests on innovation and most likely in the risk mitigation department.
Phil Wickenden is the managing director of So Here’s The Plan
All quotes have been taken from interviews with QCF 4 qualified financial advisers from fee charging businesses.