RDR: The new world order
Major change creates a need for great insights about the environment post-change. Yet it is only those with a detailed understanding of their entire retail service value chain who can bring really valuable understanding.
Clarity of products and services
In-balanced or asymmetric information distorts competition in the market for financial products, making it difficult for consumers to choose an appropriate product. There is still a lack of transparency about product charges, so with rebating to be banned at some stage post-‘R’day, we must now see emphasis on RDR-ready products and services. This means recognition of client paid remuneration (CPR) and service-levels reflecting the need to ensure clients’ needs are met.
The development of ‘holistic’ long-term services incorporating technical advice and a clear, consistent, client proposition is now in evidence and is essential for RDR survival. By placing themselves in the clients’ shoes and thus giving a full understanding of the value chain and service proposition, product providers and intermediaries will aid transparency and engender client trust pre and post-RDR implementation.
A ‘transformational’ customer relationship needs to be developed where flexibility and customer-first focus is key. Transactional relations may fade but will also play a role, particularly where simplified advice or execution-only is employed.
The FSA guidance consultation paper - ‘Assessing suitability: establishing the risk a customer is willing and able to take and making a suitable investment selection’, needs to be understood in relation to overcoming perceived shortfalls in collection of client information, reliance on risk profiling and asset allocation tools, description of attitude to investment risk and investment selection.
Behavioural economics cannot be ignored and it may be just as important to assess the capacity of clients to take risks and the consequences of any adverse outcomes.
Advice is and will be driven by transparency and ethics. Advisers are challenged with (QCF) Level four examinations, which are now effectively a license to trade. ‘Specialist’ adviser roles already exist in the form of pensions transfer, long-term care and equity release. However these advisers are tied to product advice in their regulatory policing. The future may well see the need for specialist departments in adviser businesses with increased professionalism in their respective areas of expertise. This increased ‘professionalism’ will mean an increase in consumer trust.
Fee charging and remuneration
Adviser charging is one of the elephants in any retail financial services boardroom. The VAT issue needs to be tackled head-on and agreement on where and on what is charged to the client. The fact that debate surrounds predominance of services or intent to intermediate for VAT charging means this is an unintended consequence of the RDR and desperately needs clarification from the FSA and HMRC.