On the road to the RDR
IFAs must find ways of offering a better, more cost-effective service in the run up to the RDR, Novia Financial says, as its roadshow on the new rules continues.
According to Paul Boston, sales and marketing director at the investment platform, IFAs who have typically received standard annual commission, or 0.5 per cent of clients’ assets, will probably be unprofitable if they continue to service clients with assets of less than £100,000 – assuming they use a discretionary fund manager to run the clients’ money without a platform.
However, according to Mr Boston, this no longer needs to be the case, as there is now a way for IFAs to service their smaller clients cost-effectively and “deliver an even better proposition that will include agility of management, investment expertise and control of the assets” – as long as IFAs use an appropriate platform alongside a discretionary fund manager, or DFM.
Novia has teamed up with a number of DFMs, such as London & Capital, Seven Investment Management and Brown Shipley, for a series of breakfast events to discuss the options available to IFAs in the run-up to the RDR.
This week the firm is in Birmingham (on April 23), Exeter (on April 24), Belfast (on April 25) and Edinburgh (on April 26).
“With RDR fast approaching, the IFA’s mind is focused on what their client proposition is going forward and which clients are profitable and which aren’t, because the days of cross-subsiding clients are going. The axe is falling at a surprisingly higher rate,” says Mr Boston.
“IFAs are stuck between a rock and a hard place, because while they accept that they can’t make money on the clients individually, collectively we can’t afford to sack them all, so they need to find a way of delivering an enhanced client proposition where they can potentially charge more, or deliver it in such a way that it costs them less.”
According to Mr Boston, however, this should be achievable. He says clients no longer need to incur multiple layers of high charges, thanks to the relationship between platforms and DFMs.
“The old dynamic meant that the DFM would agree a fee with the client for managing their money, a fee that would then have 20 per cent VAT added on. The DFM would then manage the money within their own custody and would often pocket the rebate that came from the active fund managers, and then pay the IFA for managing that money, typically 50 basis points,” explains Mr Boston.
He says that the new dynamic, which can be achieved by using a platform, is fundamentally different, because the platform provider does all of the administration and aggregation, lowering the overall costs.
“Because we are doing the admin and the DFM doesn’t have to charge the adviser, the fee is typically less – roughly 25-30 bps. So the VAT impact is also much lower,” says Mr Boston.