Advisers' RDR concerns switch to profitability after opting to stay put

Post RDR concerns

What is not clear from the article is whether the IFAs who say they will stay in the business will be continuing as IFAs or not. If I am to believe St James' Place, IFAs are pouring over the fence into their business; so, still in the business, but not as IFAs. Does anyone have reliable data on this?

Posted by: Justin

Profits?

Let's be straight about this, and look at the context. The RDR is being applied by coercion by an unelected and unaccounatble bunch of institutionally ignorant capricious functionaries. Along with the rest of the agenda of the FSMA 2000 it is proto-nationalisation of IFA's as has already been achieved with banking and insurers. For those IFA businesses who embrace the corporatist mindset of the FSA there will be profits - entirely at the expense of the client/consumer as has beenb evidenced by the excess pay in the banking sector. The RDR will fail. And the 'profits' of the small local IFA will suffer.

Posted by: Steven Farrall

Why will profits suffer?

@Steven Farrall Why will profits suffer? I also don't understand "profits at the expense of the client". Any business is paid by it's clients, and should make a profit. No profit means no future, which undermines any future relationship you have promised to your client.

Posted by: Nigel Barker-Smith

RDR can be profitable

Fee charging and adviser charging can certainly lead to profitability for the small regional IFA. We have charged fees for advice and adviser charging for implementation/ reviews since 2004 and today we charge our clients less than we did before we made these changes. Our profitability today is higher than it ever has been. Reality is sometimes much better than the theory makes out

Posted by: Nick Bamford

Interesting

@ Nick - thats really interesting!Out of curiosity (as we are tentatively thinking this anyway), would you put this down to not wasting time dealing with issues that you dont get paid for? For years our industry really hasnt known what to charge and the main advantage I can see with RDR is the fact that you wont always work for nothing. Whether clients are willing to pay en mass going forward is another thing entirely!

Posted by: Richard Blackshaw

Good question

@Richard Blackshaw that is a good question. I would put it down to; A change management agenda that took our business apart and reconstructed it. We looked at; Proposition what we did for clients and whether that was valuable to them and valued by them.Service orientated. Unbundling advice from the product solution and unbundling product solution from review service.And this gets to the hub of your point. If you unbundle between client services and between clients you eliminate cross subsidy and that eliminates profit erosion.It does also mean that clients pay for the services they get not the services someone else gets Segmentation and disengagement in a nice way with those who do not fit the proposition. Documenting and implementing systems and processes so that everyone (even in a small firm knows what they are doing) Pricing in a suitable way and not getting over concerened about how the client pays whether by fee or from product (and recognising early on that adviser charging is not fee charging)although we do charge fees for the advice part Marketing to the right target market and not saying "yes" to everyone Getting the right people into the business and getting them to work as a team. Sorry to be so long winded but for us it was about how we morphed from being an advisory firm to a business that delivered really good advice and service in a business like manner

Posted by: Nick Bamford

Good Question

@ Nick thanks Nick. That sounds logical and it is certainly where we are heading. Thanks for the heads up and good luck!

Posted by: Richard Blackshaw

Profits will be made but and the expense of the many

Sure profits will be made by some post RDR, but I still cannot see how the majority of consumers will benefit in the long run. My guess is by 2014/15 we will see much larger numbers of advisers leaving the industry or becoming tied or mortgage and protection advisors.

Posted by: Michael Fallas

Surely advisers can charge what they like?

OK, so my title is a bit tongue in cheek, but for decades it has been the insurance companies and unit trust companies that dictated how much we got paid. If the commission on Unit Trusts had been 6% and 3% on bonds, I don't think anyone would have sold a bond, and the FSA would have had no reason to force these changes. We did an EIS recently where the commission was 2%. However we agreed a charge of 3% with the client, which took the provider by suprise, but they agreed to pay the extra 1% to us as an adviser charge. I believe it is this option for advisers to now set their own charges that is worrying the FSA, and forcing them to monitor adviser charges through the insurance companies.

Posted by: Jason Ball

Profits and better consumer outcomes

I take a much more optimistic view of the post RDR world than Michael. I base my optimism on the 40 plus advisers with whom we have spent time in the last year sharing best practice, with everyone in attendance gaining valuable insights. I also see an opportunity for the delivery of advice to the mass market (rembering that in excess of 50% of UK Citizens currently have absolutely no engagement with the financial services industry) at a much lower price than the current amount they are paying. We should all be astonished that, as the ABI revealed, the average typical cost to a consumer of advice about one financial product is £670 and takes about 7 hours. We all know that a big chunk of that cost and time is based on the regulatory demands of the world in which we live but the RDR is going to be the catalyst for change. Forward thinking IFAs that we have met are already putting in place their proposition for the post RDR world and part of that is about their business efficiencies and how they add value to their client's lives. With an increasing use of effective technology to support the delivery of advice I predict that rather than a migration of advice to the high net worth market (it has always been a bit of a myth that IFAs focus on HNW- see the Cap Gemini Merrill Lynch World Wealth survey for a definition of HNW)the mass market, and mass affluent will be better served post RDR. Of course I could well be wrong but no more wrong than the assumption that somehow the UK consumer at large is currently well served by the financial services sector

Posted by: Nick Bamford

Profits and better consumer outcomes

I take a much more optimistic view of the post RDR world than Michael. I base my optimism on the 40 plus advisers with whom we have spent time in the last year sharing best practice, with everyone in attendance gaining valuable insights. I also see an opportunity for the delivery of advice to the mass market (rembering that in excess of 50% of UK Citizens currently have absolutely no engagement with the financial services industry) at a much lower price than the current amount they are paying. We should all be astonished that, as the ABI revealed, the average typical cost to a consumer of advice about one financial product is £670 and takes about 7 hours. We all know that a big chunk of that cost and time is based on the regulatory demands of the world in which we live but the RDR is going to be the catalyst for change. Forward thinking IFAs that we have met are already putting in place their proposition for the post RDR world and part of that is about their business efficiencies and how they add value to their client's lives. With an increasing use of effective technology to support the delivery of advice I predict that rather than a migration of advice to the high net worth market (it has always been a bit of a myth that IFAs focus on HNW- see the Cap Gemini Merrill Lynch World Wealth survey for a definition of HNW)the mass market, and mass affluent will be better served post RDR. Of course I could well be wrong but no more wrong than the assumption that somehow the UK consumer at large is currently well served by the financial services sector

Posted by: Nick Bamford