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Rob Reid: Can great minds think alike on RDR?

News that the Institute of Financial Planning has launched its “great minds think alike” campaign takes me back to my childhood as we had a set of drinks coasters with that very phrase on one of them.

Synergy among firms can be very powerful, provided a common direction can be determined in early course. Indeed, common purpose, the agreement of one, will be crucial if we are not to see the mass collapse of firms after the RDR. The continuing reliance on self-employed advisers is not helpful as their personal agenda rarely aligns with the firm’s agenda.

Moving to an employed adviser force is one of the key decisions of the RDR but currently the capital adequacy roles positively encourages self-employment over the employed model. I cannot believe that this fact is lost on the Financial Conduct Authority and fully expect this artificial advantage to be removed in due course, so long-term plans relying on no change are doomed to fail.

More immediately, and following on the heels of the Towry v Raymond James case, firms need to be asking themselves if it is totally clear who “owns” the client?

This is absolutely central to the valuation of many firms. If they only “own” a slice of the client base, the valuation will be based on that proportion. It is essential that advisers’ contractual arrangements and remuneration are adequately structured for the RDR.

This needs to include clearly understood parameters in relation to post-employment dealings with the firm’s clients, that is, non-solicitation clauses or the more restrictive non-dealing clause.

The best way to protect the firm is to make the strongest connection between the firm and its clients instead of between adviser and client. Comb ining that approach to the client relationship with services in a format that is difficult for others to replicate is the best defence to client loss on the departure of advisers.

Just as important, there needs to be a more robust alignment of remuneration and activity if clients are to remain with us for the long term. Firms need to ask themselves, could a smaller number of advisers deal effectively with the client base and what impact will new processes have on the number of advisers required? Could advisers move into the role of introducers? For me, the idea that an experienced IFA will be able to easily slide into a passive role in the advice process is dubious at best.

It troubles me that complacency seems to have set in with some of us avoiding the difficult decisions, exams being just one of them, and what to do with advisers who do not achieve QCF level four. Is it feasible to retain them?

Returning to the IFP campaign, the coasters had the complete phrase on the underneath, “great minds think alike but fools seldom differ”. This is not to ridicule the campaign but to merely remind us all not to become overconfident. After all, we need to engage the public, not to distance ourselves or, worse still, patronise the very people we seek to serve well.

Robert Reid is managing director of Syndaxi Chartered Financial Planners Twitter: @reidremoney


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. I agree that the capital adequacy proposals slant recruitment towards the self employed adviser and that this then means “client ownership” is with the adviser rather than the firm. I don’t however necessarily see this as bad thing in terms of embedded firm value.

    If the firm is delivering a good service to those advisers and they know that they own the clients surely that will act as an incentive for them to stay? After all if they wanted to, and had the attributes to be able to do so, they could always apply for direct authorisation and do it themselves.

    A successful self employed adviser with a long record of working with the firm and buying its services is as secure a firm asset as any client bank might be.

    It is surely pretty much accepted by most that it is the client who determines who they will work with in the future not the adviser or firm.

  2. Whether an adviser is self-employed or employed is not the issue. The issues about whether that adviser provides a good service to its clients and whether the consumer is aware that the person giving them the advice is regulated and authorised.

    A growing problem within financial services is the term “advice” as the FSA has made a big thing about consumers being clear on the charges for that “advice” e.g. banning commission. The problem is that the FSA is not protecting that advice process for registered financial advisers. It seems that any Tom Dick and Harry can open up a website and create financial information which may or may not be accurate and even charge for it. The FSA allows this under journalistic principle and money-saving is a good example of this principle.

    My problem is as a professional financial adviser I’m regulated in what I can say in my website and I also have two pay regulated fees which compensate clients should things go wrong. My point is what is “advice” and when this free information becomes advice.

    This is a very important question that needs to be answered by the FSA as professional advisors need to build successful businesses based on this answer.

  3. One of the key variables I find in many firms is that management is agnostic to both the selection and application of risk profiling tools. Each adviser and consequently their clients are in an utterly idiosyncratic world. The portfolio approach is not standardized and the framing of investors investment expectations varies with each adviser. A sensible buyer would value such a busines appropriately.

  4. Interesting article and responses.

    The one thing I would comment on further from Robert Reid is “Could advisers move into the role of introducers?….., the idea that an experienced IFA will be able to easily slide into a passive role in the advice process is dubious at best.”
    Just because something might not be easy, doesn’t mean it isn’t a good move for a business and cannot be policed effectively. The simple thing to do is to insist that all contact between a former adviser is recorded so that it can be proven that no advice was given, only information (the Money Guidance Service, sorry my mistake Money Advice Service does it after all). 100% oversight is possible with today’s recording devices and selected supervision of any key cases can occur AFTER the event, which was not the case when i trained in the early 90’s. I always found “oberved sales” quite funny and they were invariably atrificial, wheras 100% recorded meetings show what really happened. I think what people are afraid of with recordings is the fact the it is totally impossible to cover all issues in meetings of less than 2 hours, hence why the maximum meetings a day are 2….. and more often, 1 a day, not the 15 (or more) a week banks target their staff for.

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