How costs affect restricted/independent debate
Advisers still have too little information to weighing up the pros and cons of post-RDR options
As D-Day for the RDR nears at the start of the 2013, many advisory firms seem to be in reasonable shape – if upbeat surveys and recent meetings with advisers are anything to go by.
One issue, however, remains unsettled. Advisers do not feel they have the numbers at their disposal to make an informed decision about whether they should classify themselves as restricted or independent under the terminology of the new regime. As part and parcel of this, they would love to see what restricted advice, or a hybrid of independent and restricted, might look like.
Advisers do not feel they have the numbers to make an informed decision about whether they should classify themselves as restricted or independent
At the moment, it remains a top five issue, rather than a top two or three. Advice businesses are trying to get everyone qualified, including perhaps a few among the several hundred across the industry who have changed their minds only recently about meeting the RDR’s “level four” requirements.
Even more vitally, they are discussing the new charging regime with clients. However, I suspect the issue of regulatory status will rise up the agenda. Indeed, it may soon become integral to some of these other business decisions.
CWC’s Clive Waller says the larger organisations have done their own cost-benefit analysis and have mostly decided on a restricted course. However, he suggests that the middle sized firms have not done similar analyses as they do not have the resources.
Last week, I phoned a few experts to find, unfortunately, that those numbers for comparing restricted, independent and hybrid models are not available – or not yet.
A rough and ready consideration of the potential extra costs would surely include research and training in new sectors such as exchange-traded funds and investment trusts, potential savings through dealing with fewer firms and, last but not least, professional indemnity insurance.
Additional risks may also arise, for instance if an adviser misunderstands a new sector, or if the regulator decides that an investment advice firm is not meeting the appropriate standard and is thus describing itself the wrong way.
For just about each area on the list, one can see how opinion may divide over whether costs are marginal or significant.
For example, Damian Davies, an executive at paraplanning firm The Timebank, says advising on a greater spread of products would not have a big implication in terms of costs. He says it is the shift in process, rather than adapting to independent versus restricted status, that has been the issue to date.
One could certainly argue that improved processes will reduce risk not increase it, whatever is under the bonnet of the investment engine.