Given that 2013 has seen perhaps the biggest regulatory change to retail financial advice for a generation, the Institute of Financial Planning took the opportunity in its 2013 members’ survey to gauge the impact of RDR.
Anecdotal evidence suggested that members who had already adopted a financial planning model had seen little change in consequence and the response confirmed that this has been the case. The ‘prophets of doom’ from certain parts of the industry have been proved wrong as the hike in adviser numbers announced by the FCA in the summer has shown, and many professional businesses were moving from strength to strength.
Some people reported that when it came to key areas of change such as charging fees and maintaining independence, they had seen very little change. However, despite these results, these are still early days to gauge the full impact of the RDR changes on businesses and their longer-term performance. Advisers may well be worried about what the regulator might do next, with concerns on the future of trail commission being regularly cited.
To date much of the change has focused on qualifications, continuing professional development and standards of professionalism. A sound technical knowledge is essential for advisers and, for most, keeping this information up to date forms part of their ongoing CPD. However what is often lacking is any real emphasis on how advisers can demonstrate to potential clients, and to existing clients, the added value of the service they provide. It is becoming clearer that the FCA is moving away from regulation based on the distribution of products, and will be much more focused on service standards, something which is likely to increase in future.
So what can advisers do to clearly demonstrate the added value of the service they provide, both to the regulator as well as to clients? Since 1986 the emphasis has been on helping advisers to develop the skills to augment their strong technical knowledge. The aim is to help advisers to deliver a powerful financial planning service to their clients, which they will be happy to pay for year in year out. It does not matter what you call it, the essence is about building high-quality client relationships that last. RDR has meant that more advisers are now taking a closer look at what they do and how they do it; looking for ways to be more effective and adding even more value for clients.
So what has changed in the past year since RDR was implemented? The results of the survey showed that the biggest change was a 44 per cent hike in those viewing ‘life planning’ as important or very important in their business, rising from 61 per cent of respondents in 2012 to a massive 88 per cent this year. Paraplanning is also on the increase with a 26 per cent rise in numbers deeming it to be important or very important to their business, up from 65 per cent in 2012 to 82 per cent this year. Perhaps unsurprisingly, the use of social media was on the rise with 52 per cent now rating it as important or very important to their business. The use of cash-flow modelling was deemed important or very important by 86 per cent of respondents, compared to just 70 per cent in 2012, while a massive 94 per cent said that offering independent advice was important or very important to their business.
When we examine this in the context that 94 per cent of the respondents told us that being an IFP member had already helped them develop their financial planning skills, it is clear to see the direction of travel. Being able to use powerful time value of money calculations with clients as well as with broader issues around communication are great ways to boost greater engagement and trust. Boosting skills as well as having strong technical knowledge are key ingredients in an adviser’s career which will equip them to provide the powerful service that clients will value and be prepared to pay for.
Sue Whitbread is communications director of the Institute of Financial Planning
