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Set realistic targets

In the November/December issue of Adviser Evolution, MGP (Employee Benefits) felt five RDR questions needed answering. Director Kevin Cannon charts their progress

Cannon: ‘Some IFAs are pinning their hopes on RDR being scrapped‘

December 31, 2012 might seem some time away, lulling advisers into believing that they have ample time to undertake all that is required to satisfy the RDR requirements. The reality is that it is a very short period in which to make a host of fundamental changes in a business.

We have aimed to ensure our plans are well structured so that the targets and progress can be clearly identified. We also review the plan, both i terms of the progress made on our original targets, but we also review if the targets themselves were set realistically. Board meetings have provided a good opportunity to do this.

I have found that talking to other groups can be very helpful as we all face the same kind of problems. This could be via a network, where you can seek clarification on any aspects of concern. Most networks are well advanced in their planning, so can provide plenty of good guidance. The seminars arranged by the providers or regulators can also be useful and provide an opportunity to ask questions about the changes. Providers are also actively helping where they can.

Reality check
At recent meetings, I was surprised at the views of some IFAs. Some were pinning their hopes in the RDR being abandoned, perhaps though
a change of Government later this year. Well, we won’t have long to wait but I think the only changes that any Conservative government makes will be on the periphery rather than at the core.

I was also surprised to see a recent survey showing that 50 per cent of firms still had to put in place a training programme to meet the new level four demands and 10 per cent still had to clarify their level four requirement. Other IFAs are being more realistic, accepting that the RDR is inevitable, but have decided to leave the industry and plan to sell their business. Some say “I can’t be bothered with taking those exams.”

In this situation, I would suggest taking the examinations so that the IFA is not faced with a “distressed sale” value when they put their business on the market. If I were looking at the purchase of another IFA on top of the usual data, I would want to know their capacity to continue independently, especially asking about the progress to level four. If the “gap” is significant, a discounted value seems appropriate. Our original plan identified five key questions – as set out in our first article – and the past few months have seen us make progress against those goals. Looking at these in order:

Do we wish to remain directly regulated?
The answer remains an emphatic yes but having said that, it’s always useful to have a plan B. The last comments suggested we thought about joining a network. I recognise that this is available, once we are able to check our progress in the runup to the RDR. Selling the business is also an option to meeting the more demanding terms of the RDR. This might help “bridge” the conflict between the opportunities of the post- RDR period will offer and the capital structure needed to bring the plans to fruition.

Do we qualify as “independent” in the post-RDR scenario?
Since I last reported, we have made progress. I would advocate that all IFAs check the CII’s website and request a Personal Learning Statement. This can be manipulated to show each person’s current status and the “shortfall” in any particular target qualification, notably level four (diploma).

Equally, CII are very efficient in reviewing any “Prior Learning Accreditation”. The net result is that you have a clearly documented audit trail of progress to date and any shortfalls.

The only changes that any Conservative government makes to RDR will be on the periphery rather than at the core

I’ve held an individual meeting with each consultant and we’ve set forth a plan of action, reviewable every six months. More success came from the October 2009 exams and we are now nearer the finishing line. The average number of exams to pass by 2012 has been reduced to one per consultant. More exams are planned for April and July.

It is worth checking out the regularity of the exams. There are only two or three sittings a year, depending on the particular subject; so that means there are eight sittings left (only five for some) after the April 2010 sitting. Whatever your plans, there is much practical help from areas such as the CII’s Revisionmate, the PFS seminars, Study Courses just ahead of the exam, etc. In addition, some academies offer help along the way, enabling IFAs to keep costs down by giving effective discounts on learning material.

What is happening to other IFAs?
Talking with other IFAs is a real bonus, as you can then establish a benchmark for your own firm’s progress. Generally, a mixed bag arises, with some being well advanced and others not yet started.

Can we afford to be independent?
We have had a third-party compliance firm prepare a report on us to check progress. As we suspected, we are well ahead in some areas while other areas need attention. At least we know the issues and can address them.

Can we make a profit in the new environment?
We need to change in a variety of ways. The change from commissions to fees can be painful and an early start is needed. We started our transition to fees in the mid-1990s and, 15 years later, we are still refining our structures. We are now at the stage where we can clearly show a menu of services and fees/adviser charging for each level of service. Help is at hand, for example, CII/PFS, networks, etc, have a range of seminars.

In summary, we are in a changing world and the transition to the new environment post-RDR will take a good deal of time. It cannot be somethin which takes place overnight. Establishing the right questions is important. One thing is clear – the move to 2012 is not just about level four qualifications – the whole business model needs to be reviewed.


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