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Working model

The retail distribution review is shaking up the industry and prompting advisers and providers to rethink the financial landscape from the point of view of the client.

There are clear indications that there is going to be a new model in financial services driven by the needs of the customer which is how it should be.

New model is typically used to describe how advisers are changing their businesses to look after their clients better but providers also need to revolutionise their businesses. The FSA is actively encouraging the industry to develop itself and we should rise to this challenge.

For the implementation of a new model to be successful, customers should be able to identify clearly the difference between advice and sales businesses. This is the clarity that the customer expects and we all stand to benefit from delivering it.

The post-RDR world should create greater recognition of the value of the advice that financial advisers deliver. Many advisers have long enjoyed and earned the trust of their clients but there are large numbers of potential customers who have not previously known how to find proper advice.

In making a clear divide between advice and sales, these potential customers can make an informed choice and will understand what they are getting.

It should also be applied to all aspects of the market as customers will not see mortgage advice as different from advice on investments. A clear definition of advice and how it is delivered will increase trust in the industry and encourage more customers to seek advice.

For the first time, there is an opportunity to create an industry model where each of the stakeholder groups – customers, advisers, providers, shareholders and the regulator – are aligned and interconnected. That has got to create a degree of trust that our industry has arguably never enjoyed before.

There are many people in the industry who share our enthusiasm for building a new model in financial services. The FSA wants to ensure that customers can trust our industry. Building trust should help to attract more customers, thereby addressing the savings gap and other gaps such as the level of under-protection in the population and the scale of debt.

Customers are crying out for simplification in financial services. A simple model can create trust and better serve a more knowledgeable, engaged and involved customer. The needs of such a customer will stretch for longer and they will require flexible and innovative solutions. How can a new model help your business thrive in a post-RDR world?

First, there is the absolute need for a clear distinction between sales and advice.

Advisers focus on the needs of their clients while representatives in a sales channel sell the products of the organisation for which they work. Once a client understands what is offered via each route, they are better able to form expectations that are more likely to be met.

Second, the post-RDR world will be an ideal environment in which to be an adviser but providers will clearly have to step up to the mark to offer appropriate and quality support. Administration in this industry has been poor and the sheer quantity of it often locks advisers in the office and reduces the time available to meet clients.

It is also saddening that historically many rules have focused on the structure of the payment for advice rather than the value of the advice to the client. A model that shifts this focus should be warmly welcomed.

Providers will not only need to offer adviser support but will also need to work on getting the technology right. The platform model can deliver the diversification and flexibility that advisers need to meet clients’ needs and is the base required to deliver a client’s financial plans most effectively.

There are two main challenges to providing an effective platform. The first is that the provider will have to leave the old-style product world where clients are often trapped in a product through penalties.

The second challenge is the cost of funding the initial investment in the technology and then reinvesting time and again to keep that technology up to date.

The platform that an adviser chooses for a client must remain suitable for the client’s needs throughout. A platform that does not benefit from regular investment may not remain the most suitable option.

Providers have much to do to succeed in a post-RDR world but a prerequisite for success is the support of the shareholder. The stockmarket can have a very short-term outlook and some providers will be pressurised by their shareholders to milk their closed books rather than financing the demands of the new model.

The RDR is part of the FSA’s and Government’s agenda for a retail strategy to allow for all potential customers to have much greater confidence and trust in the financial services industry and understand what they are asking for and what they are getting.

The FSA is keen that we, as an industry, take on this challenge ourselves rather than wait for it to introduce a set of rules that will inevitably have unintended consequences.

The industry is being given an opportunity to define is good and to abide by that. The regulator is intentionally opening these doors and we have the chance to develop a strong advice channel with providers supporting it.

We have an opportunity to smarten up this industry so that we can be proud to be part of it – an industry that demonstrates its integrity through building long-term relationships focused on solutions, not products, where we harness the power of technology and where what our industry does is transparent and adds value and where our customers are increasingly informed and educated.

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