In the last couple of editions I have written about some of the challenges firms will face in implementing RDR and how fundamental it is, that they truly understand their cost base and can value their time appropriately. In a depressed economic environment with many businesses struggling to make ends meet, it’s easy to see why so many have yet to put in place a clear plan that transforms their business into one which is ready for what will be a very different and challenging environment.
However, to an outsider this must look a little odd! As an industry we spend vast amounts of effort manufacturing products, advising, convincing and creating plans for customers, which are designed to help them achieve financial goals and manage risk. Yet many of the businesses (from all parts of the market) who are providing these services have yet to put in place the necessary plans needed to manage the business equivalent of retirement or a major financial shock. There is a double standard here which will not go unnoticed!
The challenges for all participants in the market are huge. Manufacturers are faced with a weakening place in the value chain, new market dynamics and expensive system changes. Platforms, which are obviously well placed, will find their markets becoming more competitive and their users becoming increasingly demanding, whilst also starting to encounter legacy issues of their own. Distributors will also need to find, secure and then strengthen relationships with profitable customers, and convince them to pay explicit charges whilst transforming their own cash-flow models ready for a market with significantly lower transactions.
There are some who believe that the result of these challenges will be a crisis for the industry. Whenever I hear this it makes be think of the urbanmyth that the Chinese character for “Crisis” is made up of two other characters, one representing “Danger” and the other, “Opportunity”. It’s a shame that it is only a myth as I think it sums up the RDR predicament perfectly!
As the early successful adopters of so-called ’New Model Advice’ have shown, relationship- based fee-charging advisory businesses can be amongst the most profitable in the industry, while still maintaining highly satisfied customers. However, contrary to popular opinion, it’s not a model for everyone and businesses who simply follow this path blindly do so at their own peril.
The most appropriate business model for you depends largely on your existing customer base. If you haven’t already got a significant bank of very high value customers then probably the pure wealth management based models are not for you. Again, contrary to popular opinion, it should not be assumed that all transaction reliant models will fail. Certainly, a ban on provider factoring and maximum 100% allocation rates will challenge many of the current models. This is not to say that some businesses with the right customer base cannot continue to do well through regular, repeat transactions. However, once the current round of industry asset consolidation has concluded, these models will be largely dependent on new monies being invested and therefore having access to the right type of customers is key.
At Legal & General we have spent a considerable amount of time understanding how RDR and other regulatory initiatives will impact the market and our customers. As a business that is committed to supporting intermediaries, we have continued to develop our Business Solutions toolkit and fully train our Development Managers to provide this support to businesses. Furthermore, we are 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