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Making a last minute move to RDR would be foolish

It is the RDR home straight. On paper, complying with the new rules looks relatively straightforward. “All” you have to do is pass a few exams and be a little more clear about where your “commission” is coming from. In practice, it is a little more complicated.

On professional standards, now the FSA has started granting accredited status to professional bodies, it is becoming clear what will be required to gain a statement of professional standing.

Individual approved persons have been used to indirect regulation, via the authorised and regulated firm, but by the end of next year, the responsibility for this indirect regulation at an individual level will shift to a professional body.

Passing exams and completing gap-filling activity should be simple enough. Those who appear most vocal in their resistance use the experience argument. That argument could be used to suggest the exams are easy to pass.

When it comes to applying for an SPS, I can envisage a scenario where lots of advisers leave their applications until the last minute which could cause problems when they discover their gap-filling is not up to scratch.

Self-imposing an earlier deadline for getting an SPS makes sense.

A much bigger risk surrounds pricing and proposition.

Some of the conversations I have had recently with advisers suggest an assumption they will be able to switch off commission on December 31 next year and switch on advisercharging the following day.

In some respects, this might be possible. Where you are simply moving from a commission charge for implementation to an adviser charge for implementation, also deducted from the product, the remuneration structure looks broadly similar. Nothing says you must charge a fee for advice.

I think any adviser who continues to give away advice for “free” from 2013 has a screw loose but it is a personal choice to use a “remuneration for product sale” model.

Where adviser-charging does differ greatly from commission is transparency. It is this transparency, where your clients can see what and how you are paid, that has the potential to derail a quick changeover from commission to adviser-charging.

Without a compelling proposition, it is unlikely that any investor would part with cash via adviser-charging, even if they had been happy to do so via the commission mechanism.

It takes time to create, test and refine a compelling proposition. This is not something that can happen overnight. It is probably not something that can happen in the space of a few months.

The FSA deadline is an absolute deadline. It might be considered foolish to allow your business to get anywhere near it without being ready.

Martin Bamford is managing director of Informed Choice

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Comments

There are 18 comments at the moment, we would love to hear your opinion too.

  1. “The FSA deadline is an absolute deadline”
    How do you know ?

  2. @Anonymous 12 Oct 2011 1:25pm

    It’s the published deadline. Gambling on any change to this would be just about the most idiotic business decision possible.

  3. Published deadline is not necessarily the same as “an absolute deadline”

  4. @Anonymous 12 Oct 2011 1:56 pm

    When your ability to remain in business and provide a service to your clients is at stake, it is the same thing. Why would anyone plan for any other eventuality?

  5. Having read the bulk of coursebooks for RDR exams it appears that approximately 70% of it is is sexed up new jargon developed by a regulatory need to provide jobs and justifications for our beloved regulator. A whole new industry to feed off the advisors backs, tail wagging the dog and all that. Experience has been kicked into the long grass. We did this with industry not long ago so why not hamstring financial services as well? It`s a plan!

  6. It appears that Martin Bamford has written a sensible, grown-up article accepting the fact of RDR whilst the IFAs angry with RDR look set to throw their toys out of the pram.

  7. Anon 2.26
    Where do you get the justification for that statement ?
    Surely everyone is allowed their own judgement. Or are we all to agree when martin makes a statement ?

  8. Thanks Martin for an interesting and balanced article. I would like to encourage those who have still to dip a toe in the adviser charging water that it is not nearly as difficult as it sometimes sounds.

    We have worked this model for a couple of years now, firstly asking clients to sign a fee agreement that allowed us to draw our fee from commission and more recently asking them for a cheque and giving a clean product.

    Not once have we had a problem and we’re not doing anything special or working with HNW people. We are always clear about costs up front so clients don’t baulk when they see the bill.

  9. This article is somewhat irrelevant in that its content must surely be obvious to anyone intending to stay in the industry.

    Personally I can’t wait for RDR to arrive – it will be tremendous fun seeing whether we can stay in business. I also suggest we start an industry betting syndicate to gamble on who will make it for 12 or 24 months after Jan 2013. I fully expect there to be some unexpected business failures – who knows Martin, you might be one of them. Hope not, just saying!

  10. Not sure about the rest of you but I’m encouraged by Martin’s words.

    If delaying the RDR would be foolish then it’s likely that the FSA will do so. Why end a decade of senseless decision-making at this stage.

  11. To Do otherwise could even be regarded as reckless stupidity Alan

  12. I loved Alan’s post above, really made me smile.
    Marting might be surprised that as a vocal critic of the FSAs RDR cliff edge, I agree with him when he says “The FSA deadline is an absolute deadline. It might be considered foolish to allow your business to get anywhere near it without being ready.”
    Whilst a critic, I have been adviser charging for a number of years and whilst some tweaks to our charging, especially for regular savings and so protection mirrors it, I am pretty much prepared.
    When it comes to qualifications, whilst I disagree with the neccesity that to provide product sales level 4, let alone level 6 should be mandatory, that doesn’t mean I haven’t gone out an got my level 4.
    If you haven’t started, I would advise you start now as even with exam sittings for CII RO exams being very frequent, it only takes on failure on each paper to put you back a month.
    It can be done quickly, but only if their are places to sit and if you are willing to stop advising for a while. If you haven;t sorted out your adviser charging yet either, you need to start today or you’ll run out of time.
    It is possible to do the CII ROs in 3 1/2 months whilst keeping business ticking over (an idle engine, not a moving car) as I did it (with one resit). I’m not Mr Clever, I’m Mr average, but if you are going to read the manuals a couple of time, do the CII on-line revision mate (to make sure you’re likely to pass) and then book your exam, then that will take you about that time MINIMUM, whatever you do. If places for sitings start to get tight, do you want to be worrying what will happen on January 1st 2013 when you have to tell your clients, you can’t advise anymore?
    It doesn’t matter whether you agree with RDR or not or if you think the deadline for any part will move, but you owe it to your clients NOT to cut your nose off to spite your face.

  13. @Alan Lakey

    Whilst I understand what you are getting at, I wasn’t saying that delaying the RDR would be foolish. I was saying that not getting yourself/your business RDR ready before the FSA deadline would be very foolish.

  14. There’s nothing wrong with the article, but anyone still in this business after what we’ve been through surely doesn’t need reminding it would be foolish to leave everything to the last minute. I also suspect some of those preaching to the converted say one thing and practise another? We’ll see if the sun is still shining 12 months after RDR. For many I suspect not.

  15. @Phil Castle

    Thanks for your comments, Phil.

    Your points on exam timings are really important. It’s worth noting that the CII is currently taking up to 60 days to verify gap filling activity, which is a mandatory step to complete before you can apply for a Statement of Professional Standing. I can only imagine that this turnaround time will increase as we move into the second half of next year.

  16. In order to keep RDR on track product providers should stop offering commission to fee-based advisers right now…

  17. “In order to keep RDR on track product providers should stop offering commission to fee-based advisers right now…” LOL

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