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From Special Report: RDR Software - June 2012

Software update

By making the most of back office systems the adjustment to RDR can become much more straightforward

By Paul Yates | Published Jun 27, 2012 | comments

With the deadline for the retail distribution review now less than six months away, the vast majority of advisers still have some way to go to meet the regulatory requirements to be ready and able to work in a post-RDR world.

Not only is it vital for advisers to be fully compliant and up to speed with the FSA requirements, it is also crucial advisers have the right tools and supporting technology in place to enable them to operate after 31 December 2012.

The preparation required should not be underestimated and many advisers are doubtless daunted by the task ahead.

The secret is to break RDR readiness down into bite-size pieces so you have the clarity to satisfy critical requirements and forge your course for the future. You are by no means alone in this with plenty of support materials available online to guide you through key areas of focus. To get you started, we have identified the crucial milestones on the path to RDR.

The starting point has to be assessing exactly what the task ahead means for your business. Make sure you fully understand the RDR changes that will take effect from 1 January 2013 before assessing your current level of readiness. An audit will help identify any gaps or shortfalls and kick-start your planning.

At this stage you will need to address some fundamental questions about how RDR is likely to shape your proposition. This should begin with deciding whether you will offer independent or restricted advice, or a combination of both.

Next, you need to get a clear understanding of how your business is currently run and, ergo, the effect that RDR will have on it. If you assess and monitor output against income, you can get a better idea of what needs to be done to remain profitable post-RDR.

This sounds complex but you should at least try to get an idea of the fixed costs of running your business, particularly if this is something that you have not done before.

Technology can be really helpful in this particular area. Make the most of your back office system; logging information, maintaining data and reporting on all client activity can be streamlined and make the adjustment to RDR much more straightforward.

After analysing the inner workings of your business you are well placed to begin segmenting your client base.

RDR is going to fundamentally change the way that advice is offered, and for many advisers, change the way in which their business functions on a day to day basis.

You will need to evaluate and rate each client to your own set criteria before grouping them into clearly defined segments. It can be done in a variety of ways, not just by the amount of funds under management, but also on how much each client costs to service. This will help you determine the fee structure and charges you would need to introduce if you were to continue to serve them to the same level post-RDR and establish whether you have any clients who are no longer profitable or core to your business.

Segmentation is a critical part of the transition but plenty of guidance on how to tackle it is available online.


After segmenting your clients you will be able to decide the levels of service you want to offer each group.

For some clients this could be very basic, such as maintaining their records and offering access to their portfolio remotely through an online portal, through to a more personalised service with regular reporting and face-to-face reviews for high-value clients.

Technology will be a critical enabler in this situation, helping you to deliver varying service levels cost-effectively.

For example, the lower end of the client spectrum may be best served through a direct-to-consumer offering which lets them self-serve using tools and services through your website or mobile applications. Higher end clients will expect more added-value and better quality reporting and that is possible with intelligent financial planning systems offering dynamic cash flow forecasting and “what if” scenario planning.

Although the background and definitions of what adviser charging will look like from 2013 was issued in November 2011, recent research suggests a perceived lack of clarity in the eyes of the adviser.

Take the time to do your research in this particular area and make sure you understand the impact it will have on your proposition.

If necessary, refine your internal processes so that they meet the requirements of adviser charging, and consider the implications that VAT may have. If you are not already a fee-based firm, this will involve a shift in mindset from commissions to fees and the way in which you report to your clients will need to adapt to this.

Give yourself time to consider your process of setting a charge, raising the appropriate invoicing and accounting for how that invoice will be paid. This information will be critical to your regulatory reporting and your back office system should facilitate this.

Remember, there must be clarity in the way you report to your clients and provide evidence to the regulator and HMRC. One of the best ways to do this is to use integrated software and technology that lets you move seamlessly from back office administration to liaising with product providers and keeps an audit trail right along the supply chain.

Having completed the five previous steps you will be in a strong position to present your RDR-ready business to the world. When doing this it is vitally important that you have consistency in the way you communicate with providers and clients alike; a clear way of presenting your offering to new and existing clients and most importantly a transparent and effective way of showing the value that you are adding.

RDR is going to fundamentally change the way that advice is offered, and for many advisers, change the way in which their business functions on a day-to-day basis. The outcome of this, with the help of technology among other things, can be an improved efficiency and ultimately allow advisers to dedicate more time to their clients and spend less time worrying about how they will be reporting their work to the regulator.

With six months to go, time is short and the need is great to ready yourself for this watershed moment. By assessing where your business is today and breaking into manageable chunks what it is you want your business to look like come 1 January you can ensure that you have all the tools in place and processes streamlined to make this vision a reality.

Paul Yates is strategy and product development director of Avelo

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