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Be prepared

RDR planning must start now to ward off future headaches

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The retail distribution review will alter the landscape of advice at a micro and macro level. At a micro level, interactions between advisers, their clients and product providers will change.

At a macro level, the impact of changes in remuneration arrangements, new prudential requirements, professional standards and demographics will drive a number of smaller and medium size IFAs to consolidate with larger players or exit. It is conceivable that big familiar industry names will be acquired by competitors, product providers or consolidators. We think the real impact of these factors will not emerge for some time but it will be considerable.

Ernst & Young research has shown that up to 30 per cent of IFAs are considering leaving the industry. Advisers intending to sell should be starting the process now to find a good home for their clients – a partner that is willing and able to offer advice, service and investment propositions that extends across a broad spectrum of the IFA client base and provide assistance in the almost inevitable data cleanup exercise. Some consolidators, including Close Asset Management, are offering such solutions but capacity is finite. IFAs must look very carefully at investment solutions on offer from potential acquirers and ensure they cater for the small Isa client as well as higher-value clients.

One of the key trends we see in businesses preparing effectively for the post-RDR world is the way they are approaching investment advice.

The market appears to be polarising between adviser firms investing in in-house resources to provide a professional investment offering and those that outsource investment advice to a professional discretionary manager. The outsourcing trend is marked and we expect it to become an increasingly dominant market feature.

The roles of the parties should be quite clear here – the advisory firm owns the client relationship and carries out overall financial planning while the investment partner is responsible for managing portfolios in line with objectives, attitude to risk and time horizon. Advisers should ensure investment solutions cover a broad spectrum of portfolio sizes and be available through platforms and wrappers – partial solutions could provide advisers with as many headaches in the future as they have now.

For many IFAs we talk to, client segregation is considered almost blasphemy. However, the truth is it is economic madness to try to provide the same service to all clients. Even smaller clients can be profitable if service is tailored to what they pay and expectations. As a minimum, and whether IFAs are exiting or staying, understanding client economics will be crucial in optimising profits and business value.

This is the time to start planning for the RDR and developing strategic relationships to support exit or continued operations. Changes will be significant and will be on you much more quickly than you think.

Stuart Dyer is head of intermediary acquisitions at Close Asset Management

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