Time to cast your minds forward

Recently I have been doing some full-on RDR platform work, towels wrapped round the head, that kind of thing. A couple of things have struck me on the way past that I think might be quite important this year.

Firstly, the state of RDR readiness varies quite considerably across the industry. We will name no names here, but while some companies have been putting considerable resource onto their RDR workstreams for some time, others have chosen to wait for more clarity on key issues before mobilising. Of those, I think the former have the edge right now. The details may change a bit, but if I were a lifeco or a platform I would have been cracking on for a while now.

A key part of due diligence for advisers is to understand the provider’s ability to keep going in tough times. That is not just fiscal – it is about business readiness and continuity as well. If you look at the due diligence process very large organisations conduct for supplier selection, this kind of thing is very important. As IFAs, you should feel confident in asking as many questions as you need to to feel comfortable and confident in your providers. Your clients deserve nothing less.

Secondly, there is a huge split between the things providers and advisers have to do to keep trading after RDR, and the things that they should do. The minimum requirements, in some cases, are not that onerous. For example, there is no requirement for providers to facilitate adviser charging. They just cannot pay commission on advised business post-RDR.

Now, the commercial impact of not developing adviser charging functionality will be, shall we say, pronounced. Everyone will build it. But not everyone will build all of it, at least straight away. Some providers will put in huge flexibility or may even have it already; others will need to phase it in over time. This is by way of saying that it is not enough to ask providers: are you going to facilitate adviser charging? You need to get underneath that and ask what they are planning to build in detail. Will they support ad hoc charges or only those defined at outset? Can you take charges as a fixed fee, a percentage of fund, a percentage of premium or a mix of all the above? Does the charge come from the cash account, and what happens with auto-disinvestments if there is not enough in there to cover it? The detail around these developments is not just important for advisers; it is crucial.

I speak to quite a few advisers who are thinking about using multiple models for different segments of their client bank. Many clients are ‘multi-channel’ consumers of financial services – they will do some things themselves; others they will look for help with. This presents a really interesting challenge for advisers and platforms. Is it desirable for one client’s wrap account to contain both advised and non-advised monies? How does the system record which is which? Do different rules apply to both on the platform and how are they enforced? If, in our situation above, there is not enough in a cash account to support an adviser charge, are both classes of asset sold or just one? And what if an arm of the IFA practice goes restricted? Does the system give up and go home or can it cope?