Blog: Does the RDR even matter?

RDR does matter

RDR matters in lots of ways. Improved qualifications must have a positive long term effect and commissions had to go given the fact that there are plenty of 9 percent initial charge bond jockeys on the loose who won't ever change voluntarily. But the real reason why it matters is that IFA firms will jave to become capable business people to survive in the new environment. There still seem to be huge numbers of organisations that don't really engage with stress testing their new world business model, incuding factoring in unexpected horrors like Keydata type levy charges, PI cost increases, lack of long stop etc etc. If you took the new world IFA business proposition into the Dragon's Den, possibly excluding services to very HNW clients, they would scratch their heads and say 'we're out'. I genuinely believe that many firms who are confident about the future will fail in the three years following RDR implementation, and will be surprised that it happened.

Posted by: Huw

RDR does matter

The reason I do not think RDR will work is that unless customers are in the 100k a year income gap customers( clients) whatever we want to call them will generally be willing or able to pay the fees required to make a small-med IFA bussiness viable. working on basic PI and FSA fees, FSCS fees and office rates my firm needs £70 p/h to break even before wages. can anyone advise how to reduce any of these fees if anything as the number if IFA's leave the industry there will be less people to pay into the FSA pot of gold and unless the FSA reduce numbers this figure can only go up increasing the cost to anyone remaining until it gets to a level that everyone jumps. Why do you think the big banks dont think it can work for them

Posted by: Robert Lundon

Clients will and do...

... pay fees and certainly do not need to be earning over £100k to do this. This is not a rant back at the likes of Robert (above) but a fact, and more importantly I hope it is taken as a positive to encourage others in our profession.

Posted by: Nigel Barker-Smith

Market Solution

If fee based advised was going to work it would be working now. Once you get rid of commission you also get rid of the middleman (or middlewoman). I read an article in the FT weekend money saying that come RDR investment charges would not fall because firms still had to distribute their products. I've said it on numerous occasions - the battle was lost when IFAs allowed commission disclosure to be labelled "cost of advice". Commission is not really paid to advisers for the advice advisers give their clients, it's paid because advisers are marketing a firm's products. Therefore the description "cost of advice" is completely misleading because it is not true.

Posted by: Ken Durkin

Market Solution (correction)

If fee based advice...

Posted by: Ken Durkin

Does the RDR even matter

Here's my take on the RDR. I appreciate the cranking up of qualifications and accept the necessity of gap fill. Raising the professinal standard is an absolute essential. Nevertheless, level 4 or not, I do believe that a number of IFAs will find the post RDR world a struggle, especially those with self employed contracts where remuneration is currently fuelled by commissions. It's a wholly different approach to building up a viable fee based business. We managed the investmemts for a number of high value clients and have worked on a fee basis for many years so do not fear a significant shift in this area. However over the years I have seen examples of recommendations, that can at best be described as "bizarre", to clients where it is clearly evident that the proposals were made in order to maximise adviser earnings. Bonds, bonds, bonds and not a word about NS&I, ISAs, or portfolios to maximise on CGT allowances. In this regard I feel that the aspirations and intent of the RDR can only be for the client's good. However we also manage a large number of Group Pensions and I have an active involvement with these schemes and the members. It is for individuals that I anticipate RDR will have the biggest and negative change. Where incomes are low, expenditure is taken to the wire and there's nothing left over for the basics to advise on such as protection, let alone saving. These people are, to all intents and purposes, never going to consider paying for advice. If they ever find themselves in a position of need, or even want, then it is the High Street Banks and the internet that will appear to be their salvation. Neither of these, though, will come to the workplace to talk directly with them. It is, therfore, the greater masses of those less well off who will be disenfranchised by the RDR process. I said this when RDR was first mooted and have not seen or heard anything to change my view in this regard. This could be the legacy of the FSA. Does that matter? I believe so.

Posted by: Nicholas Wood

RDR-whatever next!

Of course we'll survive this, but let's not pretend that most clients will be happy to pay fees. They won't, and it's not working out well right now for those who are trying to go that way. What's wrong with taking payment from the product? Opticians take around 7 years to qualify as professionals but the public don't want to pay for their advice any other way than through the product- the lenses and frames they buy. Does this make them less professional? Of course not! So let's get some more exams by all means, but don't kid ourselves that charging fees enhances our professionalism- fee abuse exists in all professions. The problem is that the FSA just don't understand the nature of Joe Public out there. They are not staffed by people who know us and who know the industry and they never have been.

Posted by: N.Pamby

sitting tight and watching

If sitting tight and watching means making no preparations for adviser charging and hoping that life after RDR will be pretty much like life now, then it is a seriously bad strategy. Adviser charging changes a lot and the sooner IFAs start to adapt the more likely they are to survive in the new world. The future's bright but it is different. But if the advice is to hang on in there; get ready and adapt to the changing market - then that's a great way forward.

Posted by: Danby Bloch

Another great example

Thanks N.Parnaby for a super example of someone wanting advice and confidence. This time it's their eyes & not their money, but only if you buy another pair of glasses!!!!! Clients pay for goods & services in a way that we have educated them i.e. commission (or as above, lenses and frames). If you educate them to pay in a different way they will pay. They won't pay if they are not happy with what they are getting!

Posted by: Nigel Barker-Smith

Fee Sharks

Yes Mr.Barker-Smith, it was indeed a super example and there are many more in the medical world where professional advice is needed by many people who do not pay fees and the advice culminates in the sale of a product. Perish the thought but doesn't this sound a bit like you? And no, unlike many at the FSA, i don't need glasses.

Posted by: N.Pamby

RDR and all that!!

RDR clearly matters if only because it tansforms the way advice is disseminated.Initially it was an academic response as a cure all to the ills of misselling.Yet now its impact will be felt more among the product manufacturers than the distributors as the power shift favours the latter.Advice WILL move upmarket and that is inevitable from the way post RDR advisers are remunerated.I anticipate major closures among life offices as advisers will not tolerate indifferent performance and service.I also think that client relationships will be more meaningful but with fewer of them. This should reduce complaints and give back some time to advisers who will be paid for everything they do (because they wont do things they are not paid for in the future)and not just the 'arranging bit'. If you can raise the qualifications bar I think we could all come to love RDR. Only time will tell.

Posted by: Duncan Jones

Of Course the RDR matters

But from my perspective not in the way these posts seem to indicate. For some (even many?) qualifications and adviser charging are old hat – having passed those milestones many years ago. What those on the planet Colonnade have done is make a giant Horlicks of what was a relatively simple polarisation regime. We now have 4 different categories. The FSA is being coy about restricted – they are trying to say it isn’t inferior but can’t bring themselves to admit it. With regard to disclosure there must also be oral disclosure and we all know about oral disclosure – to plagiarise Sam Goldwyn – it’s not worth the paper it’s printed on! Even the written disclosure will probably be hidden on page 354. If they are going to have these divisions the least they could do is to ensure that there is robust disclosure – not the half-baked system they propose. Why then have the divisions at all if they are not made crystal clear to the customer?

Posted by: Harry Katz

One aspect that most advisers overlook or undersell?

I’ve written a guide called 'Why financial advice can’t be free'. I wrote it because I couldn’t find anything that explained, in unambiguous, logical and comprehensive terms, what it takes for an adviser to practice in business today. In other words, why advisers are justified in charging for their service — apart from paying the overheads of course! I think the guide covers all the bases, is factually correct and (from an adviser’s point of view at least) makes an interesting and thought-provoking read. Of those advisers who have seen a copy, all like the idea and the content, but aren’t certain about how the guide could be used. Come to that, neither am I. When you have a moment, please take a look by following this link http//www.finishedarticles.co.uk. If you have comments, good, bad or otherwise, please do let me have them. I’d very much appreciate any feedback you feel inclined to provide!

Posted by: Terence Martin

So we're bad business people

An earlier comments here states that the real reason RDR matters is "that IFA firms will have to become capable business people to survive in the new environment". Forgetting commission/fees and all that why are current advisers deemed to be non-business people? Here's a thought - in a distant galaxy somewhere else on another small planet there is a parallel debate taking place about RDR legislation soon to be introduced. The debate centres around the fact that most advisers are pretty lame and all because for the last 20 years they've all had it easy and have become reliant on a 1% world (or similar). As such because they all wake up with £50,000 pa income before getting out of bed then they would haven't really a clue - they all need to change and embrace the challenges of RDR. The New RDR legislation will mean that commission will be introduced and as such reliance on a regular income every year will be banned and you have to hunt every year for your spoils. In a blog similar to this someone writes - the real reason reason why it (RDR) matters is that IFA firms will have to become capable business people to survive in the new environment. I would argue that you have to be on your toes a lot more to survive if you had to earn your salary every year at the coalface. Stress EVERY year. This not my way of saying that I agree or disagree on the RDR back in "our galaxy" - what I'm saying is that all manner of things are being written about what RDR which are non-sensical. I know plenty of people who would like to be an adviser even in the pre-RDR world as it stands - they haven't the qualifications nor do the have the ability to go out there and get the business. That by definition is a non-capable business person.

Posted by: Ian McIver

Business People..........

Well said Ian. Long term surviving IFA's have usually been business people who conducted themselves in an ethical,professional manner. Thankfully, those who did not have by now, in the main, paid the penalty. It used to be called 'needs selling', before it became a dirty word when exams became manna from heaven to all non-producers. It doesn't take a great salesperson to survive in our business long term. Just a great prospector with integrity and knowledge- in that order. Nothing can stop an industrious IFA who knows how to prospect whatever the conditions, RDR or no. Give a man a fish and you feed him for a day. But teach a man to fish.............Thank God most of us were well taught. So who is going to teach the younger new breed of paper qualified adviser to find and secure business?, ie., to become business people? You only need to look at law firms getting rid of qualified fee earners who can't deliver to realise that it's time we got back to basics pre and post RDR.

Posted by: Lecuticus

Figures

I wonder where these figures I work with 10 other IFAs none of us remember providing information as to what our intentions were post Rdr

Posted by: Audrey Paterson