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Chris Davies: Identifying the new risks and opportunities


After speaking at last week’s IFP conference, on the heady subject of Behavioural Economics and the FCA, it was very evident that there was optimism in the air.

The survival of the RDR qualification cut-off and a move to professional services seems to have given a sense of confidence to those firms who have taken a genuine interest in developing a longer term business model.

Yet there is a need for taking stock to assess the regulatory directives at large to ensure risk management is at the centre of your business strategy.

On speaking with planners, product and platform providers one of the main recurring themes was that of product facilitated charging. The majority of planners still covet the product route, but many are now open to a move to explicit charging.

Markets have been relatively kind to the product based charging structure so far but more planners seem to realise complacency is to be avoided in relying on this strategy alone.

Those firms we spoke to who have employed a mix of charging structures such as time, task retainer and ad-valorem will not only meet regulatory demand for transparency and the potential product ‘dealing bias’ but also provide cash-flow protection when markets go south.

Examples of best practice we encountered include: a defined choice to outsource and operate a clear stakeholder agreement that recognises all party’s interests. Any potential conflicts of interest or cross subsidies are met head on and permission boundaries are made clear and not abused.

Also it seems that those firms who have taken ‘lifestyle’ financial planning seriously by using cash-flow modelling and/or paraplanning and associated ‘enabler tools’ such as platform comparison, CRM and risk profiling software within a ‘middle office’ structure, have been able to attract more clients and highly qualified staff to their businesses. 
This all demonstrates a move to taking a relationship driven business model seriously.

Where I see concerns about meeting regulatory objectives is with the consolidators who are juggling cultural development with striving to meet highly ambitious financial targets. A focus on culture and relationships will help moderate any overly transactional behaviour.

An example of this is developing planner remuneration bonus structures through non-sales activities such as client satisfaction scores and persistency rates. The introduction of a ‘client board’ where clients are invited in to discuss their experiences with the firm and their finances at large supports this.

With the FCA aligning its interventionist activities and tools with behavioural science, getting your firm’s behaviour and culture right has never been more critical. 

Chris Davies is managing director at Engage Insight



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