Give clients RDR agreements now
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Advisers may have been diligent in communicating upcoming RDR-related changes to clients. But it is really only when clients accept their new RDR-ready agreements with their advisers that they will be fully plugged in to the RDR process.
As a result, a recent BlackRock survey about RDR readiness is just a little bit worrying. The survey was conducted in July and covered 88 advisers who attended an RDR seminar. Some 87 per cent said they had not finalised their new propositions for their clients and just 12 per cent said clients understood the new regulations.
With the client agreements, the RDR moves from theory to practice and forecasts start to get more credible
On such a small sample, no-one would claim that this is a complete picture of the state of readiness of the market, but it should give pause for thought. During the whole RDR debate and indeed most debates about financial services and advice, it is frequently said that the client gets forgotten. Some would argue that a genuinely client-centric reform would look very different, but whether you agree with that sentiment or not, the client may be about to enter stage right and steal the show.
Obviously clients of some new-look advisers may not see too dramatic a change, though even these advisers may see their credentials and relationships tested. Other clients, who have been charged on an older model, will be noticing a big shift in emphasis and radical changes to how they pay for advice.
Those clients may feel they are being asked to make a significant leap of faith. If they haven’t already done so, advisers need to start readying them for that leap now.
Immediate preparation is not just in clients’ interests. It will also help advisers plan out their business. In theory, the RDR is designed to give more power to clients in their dealings with advisers.
Regulators will be hoping for a knock-on effect in terms of fund and pension charging as well. It all represents a very interesting experiment in practical economics. A reform that intends to hand more information and pricing power to clients potentially reducing the price of advice may also lead to a scarcity of advice potentially putting the price up. In the next 12 months or so, we will really get to see where the pricing power resides.
That will have a huge bearing on the strategy of advice firms in the next few years and on the shape and nature of the advice market and the non-advised segment too.
As advisers start introducing and signing clients up to their new terms of business, the immediate concern won’t be strategy but winning clients, retaining them and ensuring cashflows remain healthy. Advisers and indeed principals, finance directors and managing directors of bigger firms will then have the first real indication of what the RDR means for their business.