As this is the last Adviser Evolution before the RDR deadline, it seems a fitting time to look back over the past couple of years of preparation.
We intend to remain directly regulated, but are aware that some networks are offering compliance services that may prove useful, although costs will be a factor.
This has not been a real issue, as we have always encouraged and financially supported staff to become better qualified, so it was a relatively minor aspect.
This was dealt with on a formal basis, whereby I calculated the position for all four consultants and then created a programme to complete matters.
I must admit I was surprised at the level of gap-fill involved, bearing in mind our past attitude to exams. I then realised some exams were taken many years ago, so we were not necessarily up to date. I also detected a degree of parochialism between the various professional bodies on whether or not something was an acceptable gap-fill.
This will not cause us any real problems, as we already exceed 35 hours structured CPD pre-RDR. This will continue, particularly asthe consultants are planning their transition from Level 4 to Level 6, via examinations.
We started our transition in the mid-1990s, although we still refine our position regularly. Many clients accept our fee proposal, but ask that it be taken as commission (or adviser/consultancy charging post-RDR).
I would add that their choice does not necessarily relate to affordability.
This aspect is nearly concluded. We have gone through several drafts for each class of business we undertake for individual clients and expect to resolve the final wordings soon.
Our corporate business has already been moved onto an ‘RDR compliant’ basis. For example, in the case of group personal pension plans, we have an established ‘services and costs’ menu.
Currently this is not a problem, although I am concerned at the FSA’s attitude to smaller IFAs.
I think we are a problem to the FSA and it is happier with a multinational persistent transgressor – who always finds the funds to pay fines, compensation etc – than the smaller adviser who is much more attuned to the principles of treating customers fairly.
The move to fees (or fee-equivalent commissions/ charges) can improve cash flow in the business over time. The alternative is to borrow from banks, but by definition this will be an opportunity for the banks to reflect on ‘tough times’ – higher interest rates, personal guarantees, debentures etc.
This will develop post-RDR, as IFAs will be better qualified and the businesses will be more structured – a real positive of the RDR to business owners.
Arising from the above, I believe profitability will increase. For a firm of our size, we have invested heavily in technology, so we can plan for growth, particularly in light of auto-enrolment legislation.
Independent or restricted
Instinctively, we would wish to remain independent, but the terms might be overly onerous to us, particularly as we specialise in pensions. There is scope to remain independent in this situation, but I feel that ‘restricted’ will not prove an issue – our clients already know we ‘restrict’ our area of involvement, so no changes would arise in their perception of us.
In addition, we are a chartered firm, so I feel that we continue to make a professional offering to clients.
Comment: Top marks for preparation
David Shelton, Independent consultant, Stoke Bishop Associates
This is an example of a business that is well run and has taken RDR seriously. That is a recipe for success after the RDR deadline because MGP will reap the benefits of good business practice. The fact that it has been working on service and pricing for some time and has been through several iterations must mean it has a workable model. It also demonstrates how long it takes to get this right. Firms that are only now starting on proposition and adviser charging take note.
The ‘value for money mentality’ is very important – not just because it is good business practice but it reflects the possibility that revenues and margins may fall as we move to greater competitive pressures under adviser charging. Small and medium sized firms are sustainable in the future, as MGP demonstrates, because they can outsource and tap into economies of scale.
This will become more important as time passes and firms are well-advised to take outsourcing opportunities seriously. This links with its approach towards IT investment, which is an obvious source of productivity gain and enhances client service. In a market where costs are pressurised and margins squeezed the efficiency of the business is paramount, and MGP looks well set-up for the future.
The area that MGP has highlighted as important is client proposition. This does not have to be complicated but should tell clients what you do and how you do it. Structure this under the stages of your ‘advice process’ to provide a framework and keep it simple.
This will work for corporate as well as private clients. Typically firms in the corporate market have service detail in place, as is the case here. This is vital in the context of the adviser charging conversation because it deals with the question ‘What do I get for my money?’. MGP is well-placed in this regard.
Communicating with clients about RDR is good practice – the message will only get through if advice businesses take the trouble to do this. It is far better for clients to hear about the changes from their adviser than read a misinformed article in the consumer press. MGP has done well to be proactive on RDR communication.
MGP has thought about status and the practicalities of what will work best. Given the small number of providers in the group pension plan market, it is perfectly reasonable to consider restricted status. Such a decision must be based on the proposition and needs of the client bank and MGP should make sure it has taken account of this as well as operational issues.
Finally, to take advantage of the strengths of the business it is important that MGP finalises its proposition and fee structure. This is the most challenging part of RDR but with a few weeks to go it is time to take the decisions and prepare for January. As always, the more rigorous the preparation the greater the chances of success. MGP seems to have done a good job so far.