Only half of products RDR-ready

Around 50% of products currently on the market will not allow advisers to meet their RDR requirements, according to new research from administrator Capita and consultancy AT8 Group.

While recent surveys show an ever increasing number of advisers are prepared for regulatory changes in 2012, it appears product providers may have some way to go to get their ranges in order.

The new Capita RDR Readiness Indicator Profile (RIP) is based on analysis of 536 on and off platform products (292 off platform and 244 on platform).

It analyses the support products provide for adviser remuneration requirements post-2012, based on the following key criteria:

• RDR sees the introduction of adviser charging and bans the use of commission.
• Adviser remuneration must be specified by the adviser in agreement with the customer.
• Remuneration cannot be bundled as part of a product in the form of a default commission, adjustment to allocation rates, reimbursement via rebates or discounts.
• Adviser remuneration must be specified on a matched (ie 1:1) basis.
• Adviser remuneration must be flexible, meaning adviser charges can be requested as a fixed payment or percentage amount of the investment and can be taken based on the initial investment, regular contributions and ongoing investment value.
• Adviser remuneration must be disclosed accurately to the client.
• Products must not use allocation rates that exceed 100%.
  Fund rebates and discounts must not be paid out to clients’ cash accounts or to the adviser as commission.

If the analysis is split to look separately at on and off platform readiness, the off platform products review shows 51% are compatible whereas the on platform products have a 52% compatibility rating.

Mark Loosmore, founder of AT8 Group, commented: “The situation with on platform might not in practice be a big issue as the management of fees will often be done via the platform cash account.

“However, the ‘masking’ of products not being ready may still leave them as failing on some of the compatibility criteria and advisers will need to be vigilant in identifying which recommendations could fall foul of the criteria.”

He said firms that plan to offer ‘restricted advice’ will focus on a smaller range of options and should find the task of identifying and managing RDR readiness easier than IFAs.

“With the obligation on true IFAs to be ‘whole of market’, they will have to consider all options including some of the less well known fringe products and doing that will require more work and potential risk, but as we often say, the devil is in the detail,” Loosmore added.

The Capita RDR RIP will be updated on a quarterly basis to help track the progress of product providers in adapting to a post-RDR world.