I was really proud to have been awarded the Best RDR Transition Award at the recent Money Marketing Awards. We certainly took the whole RDR thing seriously right from the start and we are not alone as Almary Green is just one of the thousands of IFA firms who managed to get their act together ready for the changes on 1 January.
However, the same can not be said of the provider side of the industry.
The RDR was first mooted way back in 2006, so we have all had plenty of time to get used to the idea and to change our business models and documentation.
Why is it, then, that provider companies appear to have buried their heads in the sand until the dying months of 2012, suddenly galvanising into panic action in the last days of December?
What we experienced then was a deluge of new terms of business for products, each scores of pages long and all different – even within a single provider’s offering.
Furthermore, each needed to be read carefully. In many cases it appeared that the providers were using the RDR to rewrite their terms of business to give themselves a bigger slice of the pie, either at our expense or, worse still, at the client’s.
Cases are happening where the client is still paying the same to the provider, which would have included the adviser’s commission before RDR, without passing anything on to the adviser and then paying the adviser separately for the advice. Treating customers fairly? I do not think so.
Trail commission has proved a major sticking point. This has been a key income stream for many firms who have been focusing on building long term relationships with clients, steering clear of high initial percentages in favour of low initial commissions plus a steady trail.
For many IFAs, including me, this has always felt the more “honourable” charging structure.
Providers appear to have seen the RDR as an opportunity to turn off trail commissions without reducing their charges to the client.
It means that we have to be especially vigilant when transferring or changing arrangements that trigger new client agreements. At the end of the day, the adviser has to get paid somehow.
There is a danger that less honourable advisers in our industry will take defensive action and opt to recommend no change in order to preserve their existing trail income.
Again, the client will be the loser in the short term. However, in the longer term, it could potentially provide ammunition for the next round of misselling claims and we could all end up paying the price.
Good advisers are going to have to be even more careful that if they make a no change recommendation that their reasons why are properly recorded and agreed with the client.
The relationship between IFA and provider has always been a delicately balanced one. By adopting an aggressive attitude to the RDR’s charging rules, providers are making advice more expensive and could end up pushing some clients away from the advised route down to direct sales, and may ultimately force some IFAs out of the industry.
The purpose of the RDR was to provide a clearer, fairer market, but sadly the result could be less choice for clients.
The next twelve months will be a difficult time for IFAs as they rebuild income streams under the new rules.
Let’s hope that we begin to see a real willingness within provider companies to work with IFAs to ensure fairness and transparency in meeting the cost of advice, so that we can all get back to working together for the benefit of our clients.
Carl Lamb is managing director of Almary Green