With the deadline to RDR just twoand-a-half years away, there are a wide range of solutions emerging to help advisers gain the all-important qualifications which will be quite literally a licence to trade.
Travelling around the country talking to advisers and discussing their plans, I am increasingly coming to the conclusion that all the focus on passing exams is detracting from what will most probably be the biggest threat to the survival of adviser firms – loss of income.
While meeting the qualifications standard will be essential to trade, it is in effect an admission ticket to the new world. It will not pay the rent or staff salaries.
The need to segment customers and deliver appropriate propositions is one of the key mantras that emerge from the various RDR documents.
However, increasingly when I see the preparations adviser firms are putting in place, it appears to me that their efforts are misdirected.
Many organisations are segmenting their customers and a common message I hear is, jettison those clients who are not profitable. While I follow this logic, I think the result could be almost as painful as continuing to service clients at a loss.
By following such an approach, most firms seem to be focusing on how they will deliver post-RDR services to those customers who can still afford face-to-face advice. Although it is important to understand how offerings to such clients will change, in reality, the message to them is going to be “we are going to be doing the same for you or more and it is going to cost you less”. Hardly an approach most clients will resist.
Unless firms are expecting to be able to charge more under adviser charging than they currently receive in commission, there is a need to recognise that income from these top-end clients will fall, probably significantly.
At the same time, unless firms have operated a relat-ively high entry-level criteria for taking on clients histor-ically, the probability is that the number of clients who are no longer viable for face- to-face advice will consider-ably outnumber those who are still economically viable.
This amounts to a double whammy. Advisers could face, say, a 50 per cent cut in income from those who can afford their advice at the same time as having to jettison maybe three out of four of their current customers.
Will advisers be able to run their firms on perhaps an income of 12.5 per cent of what they were receiving pre-RDR? To me, the econ-omics of simply walking away from non-profitable clients just do not add up.
To successfully evolve in the post-RDR world, I believe advisers need to develop a range of new propositions that can provide good value advice and services to clients at prices the custo-mer can afford. It is inevitable that this will involve less faceto-face time with clients and more remote support.
I am increasingly coming to the view that this will need a new range of technology to support such relationships. Most of the components for these services exist although I do not believe any one technology supplier today has them all in a single package. Effectively, such a service would be a communication portal capable of supporting a wide range of client interactions.
Such a solution will, among other things, comprise many of the elements of a traditional point of sale system, combined with an aggregation service for client’s assets that can be delivered over the internet, mobile phone and possibly even e-book formats.
This should enable the customer to look at their investments from a range of different perspectives and even carry out some simple self-service analysis that could provide the background for a more detailed advice service with an adviser.
It should be capable of hosting screen-sharing-based meetings where client and adviser can interact remotely and capture an audit trail of any actions agreed.
Clearly, where customer relationships have been estab-lished over a period of years on a face-to-face basis, it is going to be necessary to take time to position such new services to clients. For this reason, it is this area of customer segmen-tation that needs most attention at this time.
It is not those customers for whom face-to-face advice will continue to be available but those who will no longer be able to afford such services advisers need to persuade to adopt new ways of engaging.
I appreciate that many advisers would prefer not to make such changes at all. However, I would argue that the simple economics of the RDR world make such changes a survival issue. Although many may not currently see it this way, technology can be one of an adviser’s main assets in protecting their businesses and adapting to change.
At this time, it is fair for advisers to be asking their system supplier what new services they will be delivering to meet these challenges and when. In all probability, there will be a need to adopt some different charging models for the supply of such software, a cost per client approach may well be the way forward but, equally, software suppliers need to recognise the limited capacity end customers will have for paying fees and price their offerings accordingly.
Assembling a collection of solutions which can support ongoing customer contact in more cost-efficient ways is one of the best ways for adviser firms to ensure that they will exist post-RDR and will be able to grow their businesses profitably.
One of the hard facts of life is going to be that if the exams don’t get you, failing to cons-truct and deploy new custo-mer propositions probably will. Addressing both issues must be a survival issue.
Ian McKenna is director of the Finance & Technology Research Centre