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Rob Reid: RDR, adviser charging and customer loyalty

Rob Reid glasses 150

I am always concerned that my beloved football team Partick Thistle will struggle. This year, however, we have gone off like a rocket and playing really attractive football. I realise that this could all change but I would still support them, whatever happened.

As we all endeavour to get our propositions formulated, we need to understand what drives loyalty and takes price out of the decision process.

At the moment, there are still those who could not cost a job if their life depended on it. It is as if winning any work is more important than winning profitable work. To do the latter, you need to recognise your costs and not set your price to the level of little resistance.

We recently quoted for a small GPP and lost it on costs. This is ironic as I had accidentally under-costed it myself.

The firm which took on this case will possibly realise its error in due course but before that it will slide on service and that omission impacts on all of us.

Some of the providers have approached me about decency limits. Or should they be called indecency limits?

Providers are wondering if they should cap adviser charging but that just demonstrates that the umbilical link to sums invested is the problem. There will be times when the cost of advice is out of proportion to the amount being invested. This simply underlines that advice does have its fixed cost elements.

Adviser charging has been talked about from the adviser perspective and from that of the provider but little has been considered from the client’s view of view.

With the exception of pensions (unless maximising contributions is the objective), I can see little point of using the facility unless you are running more than 10 advisers who are not employed.

The recent FSA paper on incentives was not just for the major distributors. It made it clear that there needs to be more to adviser charging sharing than volume.

Just how this will be monitored I do not know. We cannot force clients to respond and if the retail websites are anything to go by, those who respond are often negative. In any case, linking remuneration to feedback of a positive nature will result in the research being skewed by the advisers encouraging their clients to respond positively.

This is the real challenge of the RDR and not the exams. It is educating the clients not just about the value of the advice but the cost of its delivery.

As I recall, we were promised a regulatory dividend but to date I can see no sign of it. Surely those firms who have voluntarily raised their standards to chartered deserve a lighter touch. This could then help to modify the costs that the public will face once adviser charging takes effect.

There also needs to be some action on toxic products where the manufacturers seem to walk away while the rest of us are left to pick up the pieces or, more accurately, the costs.

Some have called for tests on product knowledge, that is, a form of licensing. In the case of Ucis, this could have saved a lot of clients and non-involved advisers a lot of money by way of contributions to the FSCS.

I realise that all this process and structure may stifle creativity but if that results in less in the way of contributions to the FSCS, then many will join with me in this evolution. After all, if I need unpredictability, all I need to do is go and watch Thistle, even when they are winning.

Robert Reid is managing director of Syndaxi Chartered Financial Planners

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. The expression involving the cost of everything and the value of nothing comes to mind. One of the immeasurable detriments to consumers of the RDR is that many customers will be driven to those that offer the cheapest price and not necessarily the best advice. We have often found that prospective clients have baulked at the estimates we have given unable to understand the cost to us of delivery and the value of what they are getting. Although what we quote (and charge) is much less that the traditional 3% plus trail that many consumers would have been paying in the past it is still difficult to convince new clients. We know of several instances where clients have gone elsewhere believing either their new advice was free or better value and they were frankly “conned”.

  2. Sam
    reading between the lines does this mean a failure on your part to clearly demonstrate and communicate where and why you add value?

    I think this is one of the real challenges RDR brings, advisers now need to clearly demonstrate where they add value and I do think many will struggle, you’ve had it to easy for too long. If your expensive (or appear expensive without justification as to why) then the public, believing themselves to be informed will goto where its cheaper.

    How many IFA’s have charged trail commission over the years and let’s face it, done b#gger all, for it in terms of an ongoing service.

    shape up or ship out, that’s the bottom line here

  3. I have been in sales long enough to know that you win some and lose some! We have enough work so the odd failure is not an issue and besides you often try to convince the person who is not actually the decision maker! We have always earned our trial (offsetting against future fees) but that honesty is impossible to explain to clients.
    Having posted my initial response it did occur to me that while we make provision in the cost for our advice for any possible comeback on the advice we give – capital adequacy and reserves for example, how many of those IFAs that undercut us are actually making adequate provision for their advice? The cheaper quotes are often those from advisers that disappear and then dump their liabilities on the more responsible and prudent IFAs remaining. IMHO undercharging is as bad as taking 7% full commission up front and walking away from the client and in that sense the RDR achieves very little.

  4. “shape up or ship out, that’s the bottom line here”

    It is indeed. But I wonder how many of the activity for its own sake type of new model advisers will survive ?

    RDR and becoming more “professional” may well mean that advisers feel justified in charging double historical amounts (1% pa trail “fee” for what ?) but how many clients will be taken in ?

    Some will – It’s true. You can fool some of the people….

    Advice does have a value but not necessarily the value that some think

  5. Useful comments from Robert Reid and Sam Caunt. Thank you.

  6. It is also worth noting that new rules contain specific guidance on whether advice is of value to the client.

    COBS 6.1A.16G reminds advisers that the ‘clients best interests rule’ means they should consider whether the advice is of value to the client taking account of all the charges.

    Implies that it is may not viable to give advice in some cases.

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