How to RDR-proof your business

In the second of a six part special on preparing for RDR, Ed Dymott, head of commercial at Fidelity Worldwide Investment offers his tips for getting your firm ready for 2012 and beyond.

Regulations almost always focus on fixing past events, rather than looking to address future trends and potential risks. As such we often see them playing catch up with an ever evolving market.

For this reason, many businesses look at the RDR requirements with relative comfort, knowing they have been compliant – at least in spirit – for some time.
At this point in time the majority of us now have RDR fatigue. Although the impacts of RDR will be significant, there is a risk that businesses may spend more time considering how to meet requirements, than on dealing with the consequences.

Another potential concern is businesses getting so distracted by the regulatory burden, that they struggle to meet changing market demands.

For me there are three major aspects that advisers must consider to ensure their business is RDR-proof, as well as evolving in line with the demands of the market.

The first is value propositions, the second client segmentation, and the third financial models.

You may be asking yourself – “Only three? No qualifications, no adviser charging, no platform suitability, or no consideration of whether you choose to be independent or restricted?”

Whilst these elements certainly are important, it is vital to bear in mind that they either form part of the bigger picture around your value proposition, or are instead short term challenges for you to be compliant.

Meeting the RDR requirements is clearly fundamental to being in business, but without considering the broader questions, business success in this market is not guaranteed. Following the three major themes is the most powerful thing you can do for your business.

Looking at these in more detail, we can start to examine what needs to be done.

Review and refine

Firstly, as an adviser, you need to review – and if appropriate, refine – your value proposition. You clearly already have a value proposition today – possibly more than one – but you need to understand how it is affected by the RDR.

To write a value proposition, you need to understand who will and will not be targeted. You need to establish what you will offer them, and at what price.
The choice between independent or restricted is actually part of this definition. Will customers value this part of your offering, and if so, will they be willing to pay for it?

Fundamentally your value proposition will need to determine why a customer would come to you rather than your competitor down the road. And furthermore, why they would want to pay for these services.

It is not just about delivering a value proposition, but one that is clearly differentiated, and one your customers truly value.

Segmentation

Secondly, understanding your customer segmentation model is also critical. It is as important for attracting future customers as it is for understanding your existing client base. You also need to analyse your current financial model, and consider how it may change in the future.

Understanding costs

Thirdly, understanding your unit costs is critical when delivering a fee model – how much do you need to charge for the services you offer? Do you need to review these costs in-line with your value proposition?

Clearly this process is iterative. Thorough research and testing with customers is vital. Admittedly, this is not always easy. Testing a new proposition can be difficult and selecting research participants is key.

Some companies will commission research with a third party – though the cost of this can be prohibitive.

Testing on trusted customers is always another option. Indeed some companies have even taken the innovative approach of testing on past clients. You will be amazed at the amount of time people will commit to give their views – often for the cost of a glass of wine and some sandwiches!