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Preparing for the RDR should be a major activity for every adviser firm. There are still some areas to be clarified, but many of the things that should be done are in areas where, even if a miracle happens and the FSA does a U-turn, the effort expended would be time well spent in improving adviser efficiency and profitability. This week, I would like to look at a few such steps.
As I have identified before, some clients are simply not going to be economically viable for face-to-face advice in the new world. The reality is that almost all firms have some clients for whom this is true already. One of the key decisions is, do you jettison these clients altogether? If so, do you look for a way to sell them on to someone who might be better able to service them rather than just cutting them off or do you put together an alternative proposition which can be more economical?
Such propositions will invariably involve the use of some technology. It might be that online conferencing services could help remove the need for travelling to face-to-face meetings and provide a clear audit trail for comp-liance purposes, including the documenting of client decisions and consent.
A good example of this is a new service called vScreen, which has been specifically designed to help with online meetings for the financial services industry while at the same time giving customers access to online aggregation of their assets and financial planning tools. This will enable clients to explore what-if scenarios in advance of a client meeting, which can play a valuable role.
Historically, many advisers have been reluctant to give consumers direct access to such tools. However, if you are talking about a client with whom it is no longer commercially viable to work with face to face, it must be worth inves-tigating a different approach.
Equally, for some customers, the adviser may need to make it part of the client’s respon-sibility clearly defined in the customer agreement to update their fact-find in advance of the meeting. In such situations, the right technology will clearly flag to advisers the information that has changed so they can address these issues.
It is clear that many advisers struggle with the idea that they could deliver advice in anything other than a face-to-face manner. I met with one very well known IFA two weeks ago. This is someone who is embracing technology and new ways of working, yet when it was suggested that a meeting would be anything but face to face, he was clearly in denial. There is a simple question to ask here which is better, giving the client no advice at all or finding more economical ways to deliver that advice?
Automating as many parts of the advice process as possible is going to be crucial to working profitably in the new environment. I am increasingly coming to believe that the biggest threat to IFAs in the post-RDR world will not be exams or adviser-charging but IFA reluctance to charge the right price for the work they are doing. Any organisation that does not clearly understand where all its operating costs are incurred will find it virtually impossible to put together a robust commercial model for the new environment.
For those who can, the nature of their relationship with providers will change beyond all recognition. In a post-RDR world, the name of the game will be who can you do business with efficiently? A life company can have the most attractive product or charges on the planet but if the additional cost of doing business with them, all of which will now need to be passed on to the client in one way or another, is uneconomic, they will not only not attract any new business but the vast majority of the business they already have will also rapidly migrate away. This amounts to Armageddon for organisations using a closed-book strategy if they do not have a faultless service proposition.
I am coming across a number of adviser firms which are reviewing all their existing business and then benchmarking the level of e-commerce services that providers can or cannot deliver and how this affects their operating costs. For example, Clairville York Financial Services, a firm of five advisers in Surrey, is profiling all its clients to identify the service propositions that are most appropriate. It then examines if providers are delivering the e-services they need to support that contract most efficiently.
Any business that fails this test is being highlighted for a full client review to identify if other providers would give the consumer better overall value for money.
The company has started by focusing on providers where they have client assets in the £5m-£10m range alth-ough in time all contracts will be subject to such reviews. Managing director Les Sharpe says: “We see this exercise as a key part of our prepar-ation for adviser-charging. If providers’ failure to invest in the right services means the cost of advice becomes excessive, we have a duty to explore other options.”
The sooner that advisers identify which provider relationships can be operated cost-effectively and those where, because of the lack of providers delivering streamlined e-commerce services, it is in both the client’s interests to move the assets to reduce costs, the sooner that adviser businesses can become more financially robust.
Identifying which clients you should be servicing in these ways and which provi-ders you need to move business away from are valuable exer-cises that will bring benefit, regardless of the eventual shape of the RDR regime.
Ian McKenna is director of the Finance & Technology Research Centre
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