RDR Transition: Do you need to change your service model?

How will advisers alter their service propositions in a post-RDR world?

The cost benefit of repositioning existing business models and delivering a viable service proposition to clients will be a major concern for advisers between now and December 2012.

IFAs fear being caught in a double bind of soaring RDR implementation costs and potentially falling revenue streams as they begin the process of charging for services clients previously received for ‘free’, with many advisers fearing client intransigence when switching to a fee-paying structure.

So how can advisers offer a robust service proposition to the consumer in a post-RDR world?

A compelling proposition

Despite concerns over moving to a fee-paying model, Oxera, an independent economics consultant, found little evidence of advisers intending to change status. A mere 14% of IFAs or whole of market firms plan on moving to restricted advice, presumably because this does not offer an escape from adviser charging or level four qualifications.

Therefore, the question facing many advisers is how to make their service proposition sufficiently attractive to a client base unaccustomed to paying for financial advice.

Stephen Crosbie, head of proposition management, investments and protection at Aegon, suggests IFAs must identify enhancements and not solely focus on price. Crosbie says: “If traditional protection advisers want to succeed, it is now time to stop competing on price alone.

“One way advisers can differentiate themselves is to leverage the flexibility of menu-based protection, which cannot be accessed through the internet, or enhancing their offering to help their clients mitigate the risk of inheritance tax through the use of trust planning.

“Another route that internet distributors cannot compete with is the ever-increasing importance of businesses adequately protecting themselves against the unexpected happening to a key person or shareholder in the company.”

Financial life planning

IFA Life founder, Philip Calvert, believes the RDR offers a unique opportunity for advisers to reposition and market their service offering to clients. He says: “The changes the RDR will usher in are long overdue and are overwhelmingly for the good of the industry which, in the UK at least, had grown slightly staid. For the most part, the IFA business model of 25 to 30 years ago is not much different from today: in particular the service proposition that is offered and how it is marketed to consumers.”

Calvert adds the RDR presents IFAs with a great chance to refine and market their service offering.

“When consumers are made aware of the value of those services, I believe they will be more than willing to pay, just as they are willing to pay for the services of a dentist or any other professional,” he says.

“Advisers need to offer more compelling client propositions and one of the ways in which savvy IFAs are making up for lost revenue streams is by offering financial life planning, which is akin to a combination of life coaching and financial planning. IFAs who dismiss it as a fad are missing out on a methodology that not only adds value to their clients but also builds value in their business.”

Although financial life planning is not new, with a well-established history in the US and the Netherlands in particular, it is a relatively novel concept in the UK. The theory is, in the context of a long-term client/adviser relationship, rather than the more transaction based model prevalent in the UK, clients will be more willing to reveal things about themselves and their deeper life goals, which can significantly change their financial plan.

Calvert says: “Learning life planning skills can only be good for the profession and good for clients.”

Internet awareness

IFAs can also reposition themselves by becoming more internet savvy. Given the introduction of fees, the sale of some financial products will move increasingly online. The powerful combination of information, guidance and execution facilities will enable consumers to tailor their own financial advice solutions as never before, so it is imperative that IFAs augment their online presence.

Nick Bamford, CEO of Informed Choice, envisions a future of segmented offerings where financial planning is provided either face-to-face or in combination with an online approach.

This would see a firm offering a website for the consumer at low cost, with whole-of-market choice executing the solutions that have been identified for them online.

A new White Paper released by Google entitled IFAs in the Digital Space confirms this trend. It revealed that the search term ‘unbiased financial advice’ had 84% more queries in February 2010 compared with February 2008. However, despite the rise in queries, Google claims IFAs are not tapping into the online advice market, by either failing to maintain a website effectively or not promoting their firms with online advertising.

Calvert says: “Times are changing and IFAs can no longer afford to rely on referrals as their main source of new enquiries. IFAs are missing out on a wealth of opportunity online and risk becoming increasingly sidelined in the online world if consumers cannot find them in searches.”

With estimates of the cost of RDR implementation soaring from £210m to between £275m and £370m, and ongoing costs jumping from £40m to £100m to £120m, the cost of implementation both financially and in terms of time due to exams means it is foolish for advisers not to treat the RDR as an opportunity for change.

Those advisers who stick resolutely to the old way of doing business risk losing out twice. They will waste time and money by implementing a regime from which they will benefit only marginally. Meanwhile, competitors will use any perceived intransigence as an opportunity to build their own customer base at the expense of more tardy IFA outfits.

Brett Davidson, chief executive of FP Advance, puts the choice advisers face starkly: “Change or die – the choice is yours.”