Providers must develop robust products which add real value and to help advisers transition to the RDR era
Part of the challenge of becoming RDR-ready involves balancing the implementation of systems and controls to increase efficiency, transparency and compliance measures while improving the level of service offered to clients and the long-term viability of advisers’ businesses.
For advisers who have not yet made the switch to adviser charges, then understanding how post-RDR products will affect the actual charges they levy and receive is critical. Recently, it was announced that Axa Wealth launched its adviser-charging proposition which will help advisers transition to the new rules in time for RDR. Whether the frequency and ways in which Axa Wealth can facilitate adviser charging suits the type of adviser charges advisers want to charge their clients, is another matter. Understanding what types of adviser charges can be facilitated by providers is therefore going to be an important consideration for any adviser not wanting to invoice clients and be paid by them directly. For example, can the provider support percentage-based charges, set amounts (£), and tiered charges (for example x per cent up to £100.000, then 0.75 per cent to £250.000)?
It is important that advisers can drill down to the definition of RDR-ready so that they do not find on 1 January 2013 that their preferred providers can not facilitate their adviser charging models. The difficulty currently facing advisers is that “old” or existing products lead by commission shapes are familiar to them but “new world” products will operate in a completely different manner. Further to the practical systems and process changes, potential changes in perceptions of the value of advice may be faced.
Changing the way in which a business or individual is remunerated for goods and services cannot be easy in any market but is particularly difficult in an industry which focuses on individual and families’ financial stability and wellbeing. The transition to adviser charging is seismic but not the only challenge facing advisers in the run up to RDR. In the interest of transparency and disclosure, more than ever, there is the requirement for advisers to have access to FSA-compliant illustrations and projections. It is of equal importance that advisers understand how these illustrations have been calculated (including any assumptions used) and that they are able to prepare themselves as soon as possible, if their chosen providers are not going to be fully compliant in time for the changes.
In PS11/14, published in November 2011, the FSA reiterated the purpose of key feature illustrations to give potential investors: a) an idea of the variability of potential outcome; and b) an indication of the impact of charges in a way that is comparable with similar products.
The position was further clarified: “It is not intended that products should be compared or compete on the basis of a). However, the charges information in b) should facilitate price comparisons.”