A point missed by some is that the RDR is an industry-led debate for providing solutions to the challenge laid down by the regulator that the current model does not serve any of us very well.
Many of the sessions we have attended have been populated by discussions debating proposed solutions rather than accepting, challenging or redefining the problem.
The current phase of the Entelechy initiative seeks to provide an industry-led solution to two of the main fundamental problems laid out in the Gleneagles address of 2006.
The first is that demand for advice and private provision far outstrips supply – simply there are not enough advisers to go around.
In any simple supply v demand metric, this imbalance only leads to one conclusion – higher prices and disenfranchisement of those without the financial ability to acquire the service.
The second is the clamour for new business market share by the manufacturers resulting in clearly uneconomic distribution costs and the provision of high sales fees as opposed to service or success fees, we would all know this as initial commission.
Launched on the main platform at the recent Sage conference, Money Portal has designed within Entelechy an initiative that seeks to address both of these, plus others more pertinent to our own business model.
Our “what if…” business development tool lays out clearly what would happen should an adviser adopt a behaviour which embraces change and implements a move to a more service led, annuity income model.
“What if…” demonstrates the increase in both embedded and exit value for the adviser, thus creating a clear route to a real and tangible valuation which is cash, not options or promises.
We believe this creates incentives and attraction to those who would not necessarily consider joining our sector. At the level of professionalism we all now require, our talent pool is not the teachers and ex-army personnel that direct sales-forces used to train for us but graduates and career professionals that will also consider banking and other sector roles which are sometimes seen as more rewarding.
By overlaying the quantitative measure of annuity revenue with a qualitative assessment of how that revenue has been generated, we seek to reward significantly those advisers who adopt a servicing culture rather than one of high volume sales.
Within our new practice buyout package we have broken down all forms of revenue and value them depending on source. Everything from fees to commission and Entelechy and non-Entel-echy sponsors are valued, creating a base valuation.
From there we either increase or decrease the capital amount depending on a number of factors such as the level of replacement business carried out, TCF adoption, data control, complaints and appropriateness.
This initiative has taken a great deal of effort by our regulatory teams and investment in our systems.
Our stance to risk assess advisers on an individual basis allows us to determine regulatory quality in detail and create separate valuations for each adviser.
It has long been an issue for our sector that the adviser who writes the greatest level of commission is the one most highly rewarded – if you follow the above you will understand that in Bates or Sage this is now not necessarily the case – performance is calculated as a multiple of “what” (revenue) x “how” (regulatory, TCF and business measures), the end result is a more balanced mechanism.
The “what if…” tool is available to all advisers and principals online via their own micro-site so at any time they can see how they are tracking against their business plan both by charges reducing and PBO valuation.
The headline multiple of over 6x valuation is therefore achievable, transparent and continually updated so there are no shocks to the adviser.
We have accepted the challenge and are not waiting for the outcome of a discussion paper that may not have any real impact.
So what if this method is adopted elsewhere? What if advisers were given a regulatory dividend, not by the FSA but by us? And what if we accept the challenge and change without the need for more rules? I wonder…
Alan Easter is group head of strategy and distribution at The Money Portal