We use cookies to improve site performance and enhance your user experience. If you'd like to disable cookies on this device, please see our cookie management page.
If you close this message or continue to use this site, you consent to our use of cookies on this devise in accordance with our cookie policy, unless you disable them.

In association with

Home > Opinion > John Lappin

The RDR dilemma over keeping advisers on a leash

Adviser firms are facing a RDR dilemma over keeping IFAs on a leash

By John Lappin | Published Oct 01, 2012 | Regulation | comments

Back in the days when big insurers took strategic stakes in adviser firms, one of the sales and marketing directors responsible laughed at the suggestion that such stakes were meant to make his firm any significant returns on its investment.

The big driver, he said, was keeping IFAs on a leash and ensuring the firm retained access to their customers.

In spite of a list of concerns, it seems strategic stakes could rear their head again after the RDR

John Lappin

Ten years later, most commentators would be swift to point out just how much of that capital has gone up in smoke.

Many, if not most, of the investments are close to worthless – the businesses defunct or sold on for a token sum. Even the wholly owned businesses struggle to make a profit.

In spite of that, firms appear to be mulling taking strategic stakes again. The driver could well be the appearance of so-called restricted advice under the RDR – which will mean that advisers effectively tie themselves to recommending products from a limited set of firms.

But which of these latter firms would offer restricted advisers a strategic stake today?

Is it the life insurers? For them, it could be a case of ‘once bitten, twice shy’, but it is important to consider what the alternatives are in terms of distribution. These days, the banks are arguably an even more traumatised distribution channel than IFAs.

It is difficult to discern just how the other channels – loosely categorised as direct marketing to consumers, execution-only or DIY consumer platforms and offerings for corporate employees – will perform.

Perhaps it is platforms that will be the next generation of stake takers? This makes some sense as a defensive move by a platform with a lot of assets already, given how competitive the open part of the market may prove to be in the next few years with easier re-registration. An investment could help safeguard those assets from moving anywhere else, though once again this surely only applies to restricted firms.

All firms in the process would have to make sure they stayed the right side of the regulator. Is it, for example, possible to benefit from vertical integration without coming under the rules about vertically integrated firms? Under those circumstances, it may be better to take over a firm fully.

It will also be interesting to see if the new tough-talking regulator might determine that a financial product provider that pays an adviser for a strategic stake in the latter’s firm breached the new RDR rules – given that, after the RDR, providers cannot offer advisers any inducements, most notably commission.

What do the adviser firms get? They would get investment, which could prove very useful for several reasons – to help manage the cashflow crunch in the move to adviser charging, to deal with professional indemnity insurance challenges and future capital requirements, to fund an execution-only or DIY platform, or to embark on further acquisitions.

Page 1 of 2


Our Columnists

Hal Austin

Hal is editor of Financial Adviser and has been for more than a decade. He has previously worked on a number of local and national publications.

Ashley Wassall

Ashley is editor of FTAdviser and writes on all areas of retail finance. Previously supplements editor at Money Management and editor of a European private equity publication.

John Kenchington

John is editor of Investment Adviser and has written about investments for several years. He has worked at titles including City AM and was recently named in the MHP 30 To Watch list of up-and-coming media names.

Jon Cudby

Jon is editor of Money Management and has 12 years' experience covering retail personal finance. In 2005, Jon was launch editor of FTAdviser and most recently he was head of online content for Incisive Media's financial services titles.

Tony Hazell

Tony is a freelance financial journalist, having been editor of Money Mail at the Daily Mail for a number of years. He has been writing a column in Financial Adviser since 2005.

Most Popular
More on FTAdviser
FTA jobs