However, many companies are finding out that this will be no mean feat. One particular area of the industry coming into question is the role of networks.
The RDR will scrutinise the existing business model of advisory networks and as such, will require firms to be more adaptable and innovative within the new regulatory landscape to ensure survival.
The combination of a continual decline in initial commissions and the time and effort needed to implement new client charging structures will inevitably place a strain on the most able and resilient management team. But there is a positive future for networks that are ahead of the curve.
In a recent interview, the chief executive of the Institute of Financial Planning, Nick Cann, described how network business models have traditionally been based on working with advisers who needed support with regulation and structure. This approach had always allowed the adviser to secure the commission they sought, while still leaving room for better margins for the network itself. However, under the new guidelines set out by the RDR, this strategy will no longer be acceptable, according to FSA regulations.
Furthermore, some networks have recently been searching for profitability. In order to build a more robust business model, networks have been pursuing strategies for diversification, ideally with the ability to create ‘value’ from the customer in further ways associated with the housing, mortgage, or advice event. An acceptance and understanding of this fact will in some part dictate the winners and losers of the network business. This knowledge must also crucially inform the decisions of those seeking to make a choice as to the network they partner with to face these difficult times.
There are a number of challenges for network business models to overcome in the countdown to RDR.
First, they will no longer be able to negotiate commissions with product providers in the same way. This will require the network to develop new ways of driving revenues, thus placing an onus on innovation and creative thinking within management teams.
Second, if networks are to thrive, they will be required to have a thorough, in-depth knowledge of what members are doing at all times, while also keeping advisers happy by maintaining a minimum amount of interference. In turn, there is also a greater onus on lenders to possess more in-depth knowledge of their advisers under the RDR. This obviously poses a significant challenge for both the network and the lender.
