Andy Papadopoulos, Director of advisory services AWD Chase de Vere
The main challenges are, in order of difficulty, defining and implementing a service proposition that clearly illustrates the value of advice and which provides a high quality, consistent service for all clients and segmenting your client bank in line with the defined service.
This needs to be set at a charging level whereby clients see the value that it offers to them but at the same time ensures that your business is profitable. The other challenges are meeting the professional standards for knowledge and ethics, defining an appropriate platform strategy for all client segments and, finally, ensuring that all systems and controls support an adviser’s implementation of the RDR requirements
Over and above this, firms needs to ensure that they provide an advice service and continue to bring in revenue to support their business through the biggest change programme that this industry has ever seen against a difficult economic and market backdrop.
It is likely that a significant number of firms will fail to continue trading as their revenue structure is not supportive for a change programme of this magnitude.
Danny Cox, Head of advice, Hargreaves Lansdown
The issues of qualifications and advisers joining accredited professional bodies are pretty clear firms and advisers know what is required and most are well on their way to achieving the required standards.
In terms of fee charging, my sense is that there is still lots of work to be done. Many firms have already gone through the transition of moving from indemnity commission to fees HL’s advisory team did this in 2003. However, there are many firms still struggling to get to grips with what their proposition is, who their target market is and what they should be charging. In the main, I expect most fees to be deducted from a client’s portfolio rather than being paid as a cheque.
Ultimately, the market will decide what level of fees can be charged but those firms still working on the basis on 3 per cent initial plus 0.5 per cent annual will struggle as the market is moving towards 1 per cent plus 0.5 per cent.
The main problem is the issue of platform rebates, bundled and unbundled charging structures. Until the rules on this are clear, it is difficult for firms to finalise elements of their proposition
Terry Huddart, Technical communications manager, Nucleus
“The biggest transformation for many IFA firms leading up to the RDR remains migrating to an adviser charging model. At the same time, at the head of many IFAs’ To-Do lists is still getting qualified prior to the RDR and it is clear those businessowners who are keen to guarantee their business model exists after 2012 are ensuring their advisers have obtained the minimum standard of the approved level 4 qualification.
Also, the rules relating to VAT and to what extent services will be VAT-able post-RDR still require clarification and it is important and necessary for IFAs that the rules are sorted as soon as possible.
“Embracing technology and realising the benefits of social media are significant opportunities for advisers and it will be a lost opportunity for those who don’t embrace the digital age in 2012.
The RDR, coupled with the digital revolution, will create a perfect storm for direct-to-consumer operations as it will become fundamen-tally a client-focused market albeit usually requiring the assistance of an aligned adviser and again this is a real opportunity for IFAs as they will be a crucial part of the emerging direct-to-consumer distribution model.
IFAs have been used to being part of the old life company distribution chain but the RDR will change this and providers and platforms will be within the IFA supply chain. It will be a vastly different world.”
Harry Katz, Principal, Norwest Consultants
The biggest unresolved issue for the RDR is that the FSA is still unable to provide a coherent definition of what it means to be independent. If independent means that we need to consider every possible product, the how can advisers prove it? Do we have to prove that we have considered and dismissed every product for every client? Do I have to write a memo saying why I have not chosen an EIS investment for one individual?
The majority of firms operate with less than five RIs. It would simply be beyond their capabilities to operate independence in this context. Many of the bigger IFA groups are also likely to be restricted because they are working from recommended lists. The big elephant in the room is whether the Law Society and the Institute of Chartered Accountants will deal with restricted advisers in the future. At the moment, they will only refer to independent advisers.
I believe there may also be a problem for the networks under the model proposed by the FSA because there is a ques’The RDR, coupled with the digital revolution, will create a perfect storm for direct-to-consumer operations’tion over how they get paid. Networks are likely to become more like service providers.
All in all, it is a very interesting debate.
Nick Eatock, CEO, IntelliFlo
With time ticking by and just over a year to go until the RDR comes into place in January 2013, the market in general is bracing and organising for the impending changes.
RDR is driving forward a focus on delivering efficient and effective advisory practices. This is far more in-depth and complex than just addressing the needs of areas like adviser charging. What is needed going forward is a tight set of integrated end-to-end journeys with other relevant players in the industry such as platforms, product providers and technology players.
Introducing business efficiencies will undoubtedly be of great benefit to all in the value chain but for advisory firms, this will be paramount due to fee charging nature of advice and the ability to remain profitable. The time taken to produce valuations, suitability letters and reconcile commissions manually would undoubtedly take up a huge amount of time. Using technology can greatly reduce this administrative burden to allow the advisory firm to actively engage their clients in a more profitable way. Due to client charging, each undertaking will need to be completed in the most time productive way for advisory firms to remain profitable.
These full journeys have not existed in the marketplace to date, largely because of the inherent cost in developing technology to meet these needs.
Over the next four years, we are investing £10m in achieving these goals in a set of incremental enhancements every year to deliver to our users the most effective and efficient technology available.