The new rules are here, Adviser Charging IS happening for investment related advice. So is the introduction of tougher (although not as tough as originally thought) requirements for independence and new status disclosure. And let’s not forget increased capital adequacy, new qualifications and increased professionalism requirements,
there’s surely no doubt they’re happening too.
But what does this really mean for IFAs? Conventional wisdom is that the whole market is going to move to relationship based advice and focus exclusively only on the wealthiest in our society. Whilst I agree that this will be the general trend I’m certain that it will not be the only model. There are already transactionbased businesses who discount all initial commissions back to 3%-4% and aren’t reliant on recycling older investments to generate the business volumes required. Adviser charging doesn’t seriously impact the economics of these efficient business models, although the increased transparency and explicit nature of remuneration may pose a perception problem with some customers.
I believe that the new market forces introduced by Adviser Charging will compel advisory businesses to become increasingly efficient and the true innovators out there will find profitable ways of engaging with and servicing the majority of the mass market. Many who’ve spoken to me on the subject will know that I’m far from convinced that there are enough wealthy (advice-taking) clients in the UK to support all of the existing IFA population, even allowing for exits, meaning many will be forced to explore alternative models.
This is where Restricted Advice comes into the equation – which I accept isn’t a popular view with many! When some hear the words “Restricted
Advice” they immediately think of tied/multi-tied, but this is an over simplistic view. Put simply, Restricted Advice is a service that doesn’t meet the new Independence requirements. Many, if not most, of the IFA offerings today don’t currently satisfy the new Independence requirements, but how many believe you aren’t offering your clients a valuable and suitable service?
I am not suggesting Restricted Advice is right for all of your businesses, but the decision is a practical not emotional one. Going ’Restricted’ could be viewed as an enabler with some customer segments rather than an inhibitor. By freeing itself from some of the obligations of being Independent, a business will be able to take decisions and realise efficiencies, which enable it to engage profitably and deliver value to customers whom otherwise would be excluded.
To repeat myself, I don’t believe that Restricted Advice is right for all advisory businesses, but I do predict that many will offer both Independent
and Restricted services and target them to the appropriate segments of their customer base. Just take a close look at those businesses that have already made the ’New Model’ transition and see how few rely on, or even use, the term Independent in their customer communications and marketing literature.
As a fund and wrapper manufacturer committed to intermediary distribution, we take a close interest in how the market is responding to the RDR. In a generic sense, firms sit in one of four categories and each with their own immediate challenges:
- New Model Advisers – These businesses have the least issue with the RDR but they will have to ensure that they’re continuing to strengthen their customer relationships in order to withstand the increasing competition.
- In transition – Those who’ve begun moving their business away from bundled product charges and commissions. Excellent execution of the plan is key. You’ll only get one chance to take your customers on the journey with you!
- Waiting to change – Those who are yet to make firm plans to transform their business. It’s decision time. There’s a need to evaluate and identify the most likely successful strategy for you. This will be heavily influenced by your existing customer base and expertise, ability to source new customers, and personal preference.
- Looking to exit – Time to consider how you maximise the value of your business. What are potential suitors really looking for? It’s not simply
about maximising the value of your trail book, especially as the FSA have stopped the transfer of trail commissions from one business to another post 2012!
At Legal & General we’ve spent a considerable amount of time understanding how the RDR and other regulatory initiatives will impact the market and our customers. We’ve developed our Business Solutions toolkit and trained our Development Managers to provide this support to businesses. Furthermore, we’re implementing our own IFA Business Club offering in conjunction with Shirlaws, an international firm of highly respected independent business coaches.
The Business Club will work intensively with small groups of IFA business principles to help equip them with the skills and insights required to effectively transform their businesses. It’s about helping firms to use skills employed by successful businesses in all industries to tackle planning and transformation challenges. At the same time enabling likeminded businesses to share and debate ideas in a professionally
You can find out more about our Business Solutions toolkit by asking your Legal & General Development Manager or by visiting www.landg.com/advisercentre.
Alternatively, if you’re interested in finding out more information about the Legal & General Business Club, then please email: